Ten Misconceptions about Smart Beta: Analysing common claims on performance drivers, investability issues and strategy design choices

Noël Amenc, Frédéric Ducoulombier, Felix Goltz, Jakub Ulahel: The objective of this paper is to review ten common but mistaken claims about Smart Beta, and to shed light on the underlying issues.

Author(s):

Noel Amenc

Professor of Finance, EDHEC-Risk Institute, CEO, ERI Scientific Beta

Frederic Ducoulombier

Associate Professor of Finance, EDHEC-Risk Institute, Corporate Director, ERI Scientific Beta

Felix Goltz

Head of Applied Research, EDHEC-Risk Institute, Research Director, ERI Scientific Beta

Jakub Ulahel

Quantitative Equity Analyst, ERI Scientific Beta

Smart Beta strategies, as one of the strongest growth areas in investment management recently, have established a space in between traditional (cap-weighted) passive investments and traditional (proprietary and discretionary) active management. Perhaps unsurprisingly, Smart Beta has drawn fierce criticism from both advocates of traditional active management and of traditional passive management. In a nutshell, proponents of proprietary active strategies complain that Smart Beta is not active enough while proponents of traditional cap-weighting say that Smart Beta is not passive enough. Smart Beta providers have not only responded to such criticism, but have also been vocal about the benefits of their respective approaches, without necessarily agreeing with one another. Such debates have too often led to misconceptions.

Type: Position paper
Date: le 13/06/2016
Research Cluster : Finance

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