Practical Applications of The Surprising Alpha from Malkiel’s Monkey and Upside-Down Strategies

Abstract

Turn your smart beta strategy upside down and you are likely to find a surprise! In this context, practical considerations become a defining issue.

For example, be skeptical of suggestions that any particular smart beta methodology has compelling performance advantages, caution the authors of The Surprising Alpha from Malkiel’s Monkey and Upside-Down Strategies , which appeared in the Summer 2013 issue of The Journal of Portfolio Management . Be wary of smart beta strategies that may inadvertently allow price to influence the weight, they advise. But these suggestions are only part of the story.

In an exclusive interview for this Practical Applications report, Robert Arnott explains that exposure to value and small-cap stocks is what drives the excess return of these smart beta strategies over the market-cap-weighted benchmark.

Arnott is Chairman and CEO at Research Affiliates . His co-authors are Jason Hsu and Vitali Kalesnik, also at Research Affiliates , and Phil Tindall, Senior Investment Consultant at Towers Watson .