africaen

Smart beta or alternative beta

An index strategy that aims for a better risk-return ratio than the traditional market-capitalization weighted index. 'Smart beta' refers to the higher expected index performance, in terms of risk and return.

The smart-beta strategy is an alternative index strategy for investing in a market-cap-weighted index, since the market-cap-weighted approach has a number of constraints for investors. For instance, most of the money flows into stocks with the highest valuation. This means that investments are made counter to the Value factor, which focuses on selecting stocks with a lower valuation.

Just like factor investing, smart beta strives to create an improved risk-return ratio. An important aspect is that smart-beta strategies are not passively, but actively managed. Examples of smart-beta strategies are equally weighted equity strategies or low-volatility strategies.

Although smart-beta factor approaches have proven capable of using factor premiums, there are a number of pitfalls. Taking unrewarded risk is an example, as are taking on higher transaction costs and the negative effects of other factors.

Quantitative investing: invisible layers surface to deliver attractive returns
Quantitative investing: invisible layers surface to deliver attractive returns
Read more
Quant chart: Value accelerates to strongest start in decades
Quant chart: Value accelerates to strongest start in decades
Value has achieved the best start to a calendar year in over 35 years.
16-05-2022 | Insight
‘A strong research culture enables you to stay true to your investment philosophy’
‘A strong research culture enables you to stay true to your investment philosophy’
Quant investing is very much a team sport, in fact more so than ever.
13-05-2022 | Interview
Quant chart: Meme stock frenzy confirms short-selling signal
Quant chart: Meme stock frenzy confirms short-selling signal
After more than a year following the short squeeze in so-called meme stocks, the informational advantage of short-selling data resurfaces.
29-04-2022 | Insight
Logo

Disclaimer

Neither information nor any opinion expressed on the website constitutes a solicitation, an offer or a recommendation to buy, sell or dispose of any investment, to engage in any other transaction or to provide any investment advice or service. An investment in a Robeco product should only be made after reading the related legal documents such as management regulations, prospectuses, annual and semi-annual reports, which can be all be obtained free of charge at this website and at the Robeco offices in each country where Robeco has a presence.

Please confirm that you are a professional investor and/or institutional investor and that you have read, understood and accept the terms of use for this website.

I Disagree