Abstract
Well over 30% of investment professionals use products involving smart-beta indices, but the existing crop of products meant to address the well-recognized shortcomings of cap-weighted indices fail to do the trick.
Although risk-based and factor-based smart-beta strategies are pitched as a way to avoid undesirable factor exposures and heavy concentrations, most of the current products do not meet that goal, according to Noël Amenc , Felix Goltz , Ashish Lodh and Lionel Martellini .
In Towards Smart Equity Factor Indices: Harvesting Risk Premia without Taking Unrewarded Risks , Amenc, Goltz, Lodh and Martellini of ERI Scientific Beta and EDHEC Risk Institute offer a new approach. That is, smart-factor indices that provide exposure to a rewarded factor while diversifying away unrewarded risks.
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