Tag Archives: factor indices

Multiple Paths to Multiple Factor Indexing

Single factor “smart beta” indicized strategies that were once exclusive to the realm of active management.   Multifactor indexing is beginning to garner much interest as the newest chapter of index innovation. It’s a natural conjecture that if single factors are successful, combining more than one factor should prove even more beneficial.   While any combination of Read more […]

2016 Market Performance through the Lens of Smart Beta

Participants in the Indian equity market in 2016 may have been disappointed with the muted performance by broad equity market indices (the S&P BSE SENSEX was up 3.47% for the year), while other asset classes such as bonds showed strong performance (the S&P BSE Bond Index was up 13.2%).  Where could market participants have found Read more […]

Visualizing Factor Exposures

Measuring the away-from-benchmark exposures of active portfolios (or “smart beta” indices) is not inherently complicated.  To what degree, for example, is a portfolio cheaper than its benchmark, or more tilted toward high quality stocks?  Practitioners typically approach the question in one of several ways: Calculating weighted average differences – e.g., the yield on my portfolio is Read more […]

The Making of a Passivist

I have few memories of my school French, but one of the fondest is of Moliere’s Monsieur Jourdain, who was delighted to learn in middle age that he had been speaking prose for the last 40 years.  Similarly, I did not realize until recently that I was a “passivist,” as the Wall Street Journal has now anointed the Read more […]

When Smart Beta Fails

How should an investor in a factor (or “smart beta”) index judge its performance?  In this respect at least, smart beta is like any other strategy: you should evaluate it against the claims that its vendors made before you bought it. This requires some subtlety.  Smart beta methodologies pick stocks based on fundamental or technical Read more […]

Indicizing Income

This morning’s Wall Street Journal described one aspect of the “Brave New World” occasioned by ultra-low (or negative) interest rates: Tellingly, strategists at Citigroup have created a basket of stocks for what they call “bond refugees”—investors who want yield but without the big swings in prices associated with equities. To do so, they looked for stocks Read more […]

The Teleology of Smart Beta

As assets tracking factor indices grow, so does the attention paid to evaluating and promoting these so-called “smart beta” funds.  Even the nomenclature attracts attention.  Professor William Sharpe, famous among other things for introducing the concept of beta to academic finance, has said that the term “smart beta” makes him “definitionally sick,” and lesser lights than Read more […]

Smart Beta on the Rise in India

Globally, passive investment products have amassed significant assets. According to ETFGI, the global assets parked in ETFs and ETPs stood at USD 2.971 trillion at the end of Q2 2015, surpassing the level of global hedge fund assets. The introduction of smart beta ETFs and ETPs has made it possible to gain exposure to certain Read more […]

What Rising Rates Won’t Do

Here is a dramatic chart: It provides a complete history of the trajectory of interest rates over the last sixty years—and also the backdrop for why there’s so much ado about rates today.  It also explains the consensus sentiment that there is only one direction for interest rates to head. We have no desire to enter the pervasive Read more […]

The Smarter Investor

Investors have spoken: There is a world outside of traditional indexing, and they want in. “Smart beta” or factor indices bridge the gap between active and passive management by allowing investors to tilt toward specific investment attributes – for example, low volatility or high dividend yield.  These indices use factors in a rules-based, transparent manner Read more […]