Most consider smart beta as a blend of active and passive.
Passive because the portfolio construction follows very set rules, active because you are selecting unique factor tilts.
The concern I have is that different factors might work better at different points in time and the investor will never know what is going to work moving forward. For example, having a value-style tilt was once considered to be a positive factor in past decades but it has underperformed growth-style tilts in the recent decade. So at the end of the day, the investor will still have to make a judgment call on which smart beta factors are ideal in the current environment.
Interestingly, Forbes actually published a recent article to illustrate that smart beta ETFs have generally underperformed and the reason why:
"Researchers examined smart beta ETFs listed during the 2000-2018 period in a paper called The Smart Beta Mirage. Generally, backtesting of smart beta strategies shows historic estimated alpha before launch of around +3%, however, after launch these smart beta strategies have actually lost around -0.5% a year on average relative to the broader market."
Most consider smart beta as a blend of active and passive.
Passive because the portfolio construction follows very set rules, active because you are selecting unique factor tilts.
The concern I have is that different factors might work better at different points in time and the investor will never know what is going to work moving forward. For example, having a value-style tilt was once considered to be a positive factor in past decades but it has underperformed growth-style tilts in the recent decade. So at the end of the day, the investor will still have to make a judgment call on which smart beta factors are ideal in the current environment.
Interestingly, Forbes actually published a recent article to illustrate that smart beta ETFs have generally underperformed and the reason why:
"Researchers examined smart beta ETFs listed during the 2000-2018 period in a paper called The Smart Beta Mirage. Generally, backtesting of smart beta strategies shows historic estimated alpha before launch of around +3%, however, after launch these smart beta strategies have actually lost around -0.5% a year on average relative to the broader market."
https://www.forbes.com/sites/simonmoore/2021/01...