Smart beta funds are a valuable complement to portfolios for investors that want to:
- Access investment characteristics previously only available via active funds
- Improve the risk-return efficiency of their portfolios
- Optimise management fee expenditures
- Improve the liquidity and transparency profile of their portfolio
- Diversify their existing portfolio allocation
Factor or smart beta investments offer investors the opportunity to invest in a particular style or theme they find attractive, for example value, momentum, quality or low volatility.
Investing in these factors generates risk premia, the reward you earn from investing in a systematic risk.
A rules-based factor strategy provides investors with liquid, low-cost and transparent access to systematic risks. This ensures that clients gain consistent and reliable exposure to the factors they desire.
Investors can use these strategies to access uncorrelated returns that can help improve return efficiency, portfolio diversification and volatility management.
Investors have the opportunity to outperform the market index over the longer term. Factor portfolios therefore offer “active-like” returns for “passive-like” fees.
By focusing on the underlying factors that drive risk, return and correlation, factor investing offers more efficient portfolio construction. Diversification by risk factor is expected to grow over the remainder of this decade.