Why invest in Smart Beta
Smart Beta funds are a relatively new twist to the traditional indexing methodology of using the market capitalization weighting the index constituents. It is in essence a hybrid between active and passive strategies. Passive because it follows an index and active cause it applies filters on top to select companies but more transparent than active funds. The alternatives are fundamental weighting, volatility weighting, dividend weighting, and equal weighting etc. These indexes overlay analysis of factors, such as:
- Dividend (growth or yield)
- Quality/Fundamental (balance sheet factors)
- Equal Weight Indexes
Even within Smart Beta Strategies one could use single factor or multi factors tilts to construct portfolios .