Senior QEP Client Portfolio Manager, Stephen Kwa, discusses the trend towards smart beta investing, and why investors should be cautious:
- Smart beta strategies are essentially diversified equity portfolios that employ a systematic rebalancing strategy, targeting some sort of factor that’s expected to outperform in the long run or reduce risk.
- These strategies still require as much due diligence as active strategies. They can result in exposures that are quite different from the market in terms of stock, regional and sector concentration. And also the characteristics can change dramatically on rebalance dates.
- For these reasons, smart beta strategies, while they may provide the appearance of outperformance, they never outperform all of the time. Investors need to understand the exposures they’re buying as well as the risks they’re taking on when buying these products.
