Contrarian: Why I am sceptical about the smart beta revolution

Why I am sceptical about the smart beta revolution

David Stevenson explains why smart beta strategies may not become mainstream for another five years.

Smart beta is sexy, shiny and new. In simple terms, smart beta promises to harvest the risk premia traditionally captured by active managers in a (hopefully) more transparent, lower cost framework based around tracking an index built on fairly rigid quantitative criteria. However, over the past year I have grown increasingly sceptical about the impending smart beta revolution. Not because it is a bad idea – in fact I believe it is an excellent intellectual concept that points to a new set of behaviours about investing. My own qualms centre on whether this new, new thing is actually as...