Smart beta strategies: What is hiding under the bonnet?

Concentration risk in factor indices

Smart beta strategies have gained in popularity recently, but they are clearly not a foolproof way to outperform traditional indices.

A recent study conducted by EDHEC Risk Institute has highlighted a number of issues inherent in risk factor-based products in particular, which it said are often highly concentrated in order to achieve promised returns. These types of strategies allow investors to gain exposure to various risk factors, such as value, momentum and size, but the study revealed these indices often do so at the expense of portfolio diversification. Contrarian: Why I am sceptical about the smart beta revolution The report, entitled The limitations of factor investing: Impact of the Volkswagen scandal on ...