Abstract
Oyster describes smart beta as an investment concept that can potentially provide outperformance without deviating greatly from the benchmark or making substantial individual stock bets. Pioneers of smart beta strategies such as Rob Arnott, Cliff Asness, and Jeremy Seigel, have shown how building portfolios that tilt toward factors or alternative risk premia can outperform the market and/or produce returns in line with accomplished hedge funds for a fraction of the cost. Oyster also recounts the disagreement between Arnott and Asness regarding whether factors should be “timed” in that certain conditions merit the overweighting of one factor versus another. Oyster discusses how data-mined factors should be avoided, the inevitable cyclicality of factor performance, and the challenges smart beta faces given their rise in popularity.
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- 1.
Arnott, Robert D., Jason Hsu, and Philip Moore. “Fundamental Indexation,” Financial Analysts Journal. Vol. 61. No 2. March/April 2005. 83–99.
- 2.
Asness, Clifford. “The Value of Fundamental Indexing.” Institutional Investor. October 16, 2006.
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“Understanding Smart Beta,” Towers Watson publication. July 2013.
- 4.
Clifford S. Asness Ph.D. and John M. Liew, Ph.D. “Smart Beta Not New, Not Beta, Still Awesome.” Institutional Investor. September 29, 2014.
- 5.
Ibid.
- 6.
Ron Alquist, Ronen Israel, Tobias J. Maskowitz, “Fact, Fiction and the Size Effect” (May 12, 2018). Available at SSRN: https://ssrn.com/abstract=3177539 or http://dx.doi.org/10.2139/ssrn.3177539
- 7.
Cliff Asness, Andrea Frazzini, Ronen Israel, Tobias Moskowitz, and Lasse H. Pederson. “Size Matters, if You Control Your Junk,” AQR Working Paper. January 2015.
- 8.
Rob Arnott, Noah Beck, and Vitali Kalesnik, PhD. “Timing ‘Smart Beta’ Strategies? Of Course! Buy Low, Sell High”. Research Affiliates Publication. September 2016.
- 9.
“Factor Fight Rages on Between Asness and Arnott” InstitutionalInvestor.com. April 13, 2017.
- 10.
Rob Arnott, Noah Beck, Vitali Kalesnik, PhD, & John West, CFA. “How Can ‘Smart Beta’ Go Horribly Wrong?” Research Affiliates Publication. February 2016.
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Attracta Mooney, “Smart beta funds stalked by chaotic ‘factor zoo’”. Financial Times. July 9, 2017.
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Oyster, M.J. (2018). Smart Beta. In: Success in a Low-Return World. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-99855-8_14
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DOI: https://doi.org/10.1007/978-3-319-99855-8_14
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