EC The Genesis Of Smart Beta Investing

by Mike Bowers, Research Affiliates

Exploring Smart Beta – Introduction

Smart beta strategies are increasingly recognized as a key element in investors’ portfolios. Nearly $360 billion is already invested in U.S. exchange-traded products tracking what Morningstar, Inc. (NASDAQ:MORN) calls “strategic beta” indices, and industry observers expect to see continuing growth in assets under management.

In this environment, many investors want to learn more about smart beta investing—what it means, how it differs from traditional active and passive management, and why it merits an allocation in their portfolios.

In late 2013 and early 2014, Jason Hsu, Ph.D., wrote a series of short essays about selected topics in smart beta investing, ranging from how it differs from traditional capitalization-weighted indexing to the dollar cost averaging that naturally results from periodic rebalancing. These concise pieces provide a solid introduction to important dimensions of smart beta strategies.

Research Affiliates is pleased to make the content of Dr. Hsu’s series of articles accessible in a new format that makes it easy for investors to understand key features of smart beta indexing. Because we are always engaged in research, the online version of this tutorial contains many in-context hyperlinks to other Research Affiliates publications.

Readers who wish to explore selected topics in greater depth will find these links helpful. We hope the insights you gain from the ideas and research findings presented here will help you refine your own thinking about smart beta investing.

The Genesis Of Smart Beta Investing

Smart beta strategies are a radical departure, but they didn’t suddenly appear from nowhere. They are rooted in the history of financial theory and the evolution of index investing. A glance back at the origins is a first step toward understanding how smart beta strategies have redefined the choices available to investors.

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Disclosure: None.

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