Smart Beta

Analyzing the opportunities and challenges tied to one of the fastest growing fund segments.

Investors have a tendency to downplay interest rate sensitivity as a factor influencing equity products, with the assumption being that its effect must be negligible at most. One of a handful of exceptions to that assumption, however, is concern over the rate sensitivity of low volatility “smart beta” funds.

Continuing our exploration into the smart beta segment (Part 1, Part 2), in this third post we introduce a simple “IQ Test” that can help investors and managers measure the “smartness” of the increasing number of non-cap-weight rules-based products on the market.

In this post we take a closer look at an important building block of many multi-factor portfolios, low volatility.  Low volatility funds seek to take advantage of the “low volatility anomaly”  – the empirical observation  that lower risk, securities outperform their higher volatility counterparts.

The questions fueling “smart beta” debates carry on, but that hasn’t stopped a number of providers from launching a “smarter” product – and from picking up assets as a result. In this first post of a series, MPI will begin to explore multi-factor smart beta, an up-and-coming take on the strategic beta concept.