Investing

Problems with smart beta – part 7.2: Factors work better in small caps

This is the second post in a mini-series on how factor returns from academia can be different to those from smart beta investing. For the previous post on how long only smart beta exposure compares to long/short factor exposure, click here. In reality, most of us will construct our portfolios using large funds which already …

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Problems with smart beta – part 5: It’s impossible to know when a factor stops working

This is the fifth post in a series discussing some of the problems associated with investing in “smart beta” strategies. For the previous post on how factors can decay after they become widely known, click here. We saw in a previous post that factors in the US have been providing pretty torrid returns since 2003. …

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Problems with smart beta – part 1: The cyclicality of factors

This is the first post in a series discussing some of the problems associated with investing in “smart beta” strategies. Everyone’s seen the quilt chart used to show the return dispersion between asset classes, but it works equally well for factors. Factors have just as much dispersion as asset classes, and can have wildly different …

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Problems with smart beta

For those that aren’t familiar, smart beta strategies involve an investor tracking an index which has been weighted differently to market-cap weightings (the traditional “passive” route). The indices usually increase weightings to factor premia, such as value stocks, small cap, momentum, low volatility, etc, in the hopes of outperforming their passive brethren.   Smart beta …

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