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Smart Beta – Is it really all it is beefed up to be?

Smart beta is probably the most overused expression in the world of investment today. The term suggests there are dumb betas since there are smart betas but this is not the case. There are numerous definitions and understandings of smart beta. To start with, smart beta is not an asset class of its own, rather, it is an exchange-traded fund (ETF) structured to purposely deviate from market returns and tilted towards specified factors or strategies with proven records of outperformance or managing risks. Smart betas can be viewed in the same way as artificial intelligence: a robot version of an active manager but with lower fees and passive rules. In effect, smart beta fills the wide abyss that has always existed between active and passive management.

The growth of smart beta has also come with growing controversies. Although the majority of investors do not have issues with the concept of smart beta, others have a problem with the terminology. For example, Rick Ferri, founder and CEO of Ferri Investment Solutions argues that:

“To hook investors on this concept by using the word smart is a problem, and it could be an ethical problem. The true word is additional beta, meaning additional risk, because if you think of a multifactor model, you start out with a beta and you add additional betas. So, it’s additional risk. Calling that “smart” is a problem.”

The debate is still ongoing and some critics are trying to kill off the term smart beta. Several alternative terms have been used in place of smart beta. Examples of these terms are advanced beta, strategic beta, alternative beta, factor-based, and anti-benchmark. Although some of these terms are technically accurate, they do not have the zing of smart beta. According to ETF analyst Eric Balchunas, smart beta is similar to Obamacare, which is far catchier than the Patient Protection and Affordable Care Act. Although Obamacare may not be accurate, everyone calls it that, and we all know what they mean.

Moonstone Business School of Excellence (MBSE) has developed an Introduction to Smart Beta. This course is approved for 2.5 FSCA CPD hours and provides an overview of smart beta. It covers the evolution of indexing, passive investing, the emergence of smart beta and some controversies surrounding smart beta. The course further discusses the performance of smart beta funds and the disruptive potential of smart beta in the asset management industry.

Financial planners, financial advisors, para-planners and business owners will benefit from enrolling for this course.

The course covers the following Units:

Introduction to Indexing
Introduction to Smart Beta
Is Smart Beta Monkey Business?

Upon completion of this course, you will gain insights into the various types of indexing, the benefits and performance characteristics of smart beta.

Click here to register for the online course.

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