As investor interest in smart beta gathers steam, this etfexpress report separates the hype from reality and outlines the risks and opportunities of smart beta investments
The 'Smart Beta 2013' special report comprises seven separate articles listed below, these can be read individually or as a sequence.
By James Williams – What was once a black and white choice for investors is now decidedly grey. Previously, the choice was either to go down the passive investment route or pay for the expertise of active managers. The emergence of – or rather growing popularity in – smart beta has changed all that. Now, investors have access to low-cost solutions that not only offer the passive feature of index products but also a range of factors or rules that are implicitly active.
Interview with Peter Westaway – Writing in the Financial Times on 27 May 2012, Jeff Molitor, CIO Europe, Vanguard Asset Management said that “smart beta should never be thought of as a perpetual motion alpha generator”.
By Howard Chan & Fabrizio Palmucci – Today, over 40 per cent of assets in the European fixed income ETF universe are invested in funds that track sovereign bond indices, most of those being plain vanilla benchmarks. While this ratio is falling with the launch of new ETFs in asset classes like corporates, High Yield (HY) etc, there remain many opportunities to add value.
By Ross Ellis – Many have associated exchange traded funds as purely passive, beta-indexing tools for basic market exposure. To date, this has been generally true, but the rise of active management in the ETF space may well be the next step in the evolution of the investment vehicle.
By James Williams – Smart beta. Alternative beta. Beta plus. Many names. One objective: to outperform traditional market cap-weighted indices that have long been the preserve of passive investing.
Interview with Khalil Mohammed – The Man GLG Europe Plus strategy has proven to be successful with investors. As at end-March, the total assets in the strategy are USD1.44billion.
By Noël Amenc – Interest in new forms of indexation, referred to as smart beta strategies, has grown in recent years. Investors are attracted by the performance of these indices compared to traditional cap-weighted indices. However, by departing from cap-weighting, smart beta equity indices introduce new risk factors for investors, and sufficient attention is not presently given to the evaluation of these risks. In addition, the smart beta market appears to be inefficient today, due to restricted access to information, as well as lack of independent analysis.