Kink in Smart Beta ETFs may blindside buyers

heezsafe

http://www.bloomberg.com/news/articles/2016-07-19/a-little-noticed-kink-in-smart-beta-etfs-might-blindside-buyers?cmpid=yhoo.headline

Additional factors can creep into single factor smart betas and alter their course/returns, to the downside.

In mutual funds, when a value manager strays from his mandate and ends up owning a bunch of high-priced growth stocks, they call it style drift. While the algorithms that do the stock picking in smart beta are too clever for that, a related hazard exists. It’s when funds tuned to one strategy start to be influenced by another: a low-volatility portfolio that gets infused with momentum stocks, for example.

“You can use smart beta for implementing factor investing, but you have to be very careful with how you do it,” said David Blitz, Robeco Asset Management’s head of quantitative equity research, who published a study in April about the complexities of using smart-beta indexes in pure factor investing. “What you end up with is very different than what you had in mind.”

Ted

@heezsafe & MFO Members: Nice link heezsafe, I'm jealous you beat me to it ! Here is David Blitz's study on using smart-beta indexes.
Regards,
Ted
http://www.robeco.com/images/whitepaper-smart-beta-investing-062014.pdf

heezsafe

@Ted Actually, the byline could have been better, and it was almost accidental that my half-addled brain didn't move on by. Thanks for playing clean-up and finishing off the post "right and proper," as I'd intended to do (lately, my glass being only "half-full").
p.s. And may I say that you have been pretty darn sharp lately in finding most of the nuggets in the pile of largely useless goo the financial MSM has been spewing out for several months now. You may consider that a pat on the back for a labor of love well-done! I had no idea hula hoop usage could elevate one's game so noticeably, in the short-term.