Is Smart Beta State of the Art?

Posted: 4 Aug 2015

Date Written: May 7, 2015

Abstract

In remarks given at Wharton’s Jacobs Levy Equity Management Center for Quantitative Financial Research Spring Forum, Bruce Jacobs observes the parallels between smart beta and a popular, but ill-fated, investment strategy from the 1980s, portfolio insurance. He also notes that actual (rather than back-tested) smart beta portfolios have to date shown little evidence of significant risk-adjusted outperformance, and asserts that factors are best exploited in a dynamic, multifactor portfolio that employs numerous, proprietary factors simultaneously.

Keywords: Smart beta, factor investing, factor crashes, factor crowding, front running, dynamic, multifactor portfolio, portfolio insurance, ETFs, unintended exposures, liquidity, rebalancing, momentum, trend following, book-to-price, small-cap, value, low volatility, plan sponsor, fiduciary duty

JEL Classification: G11

Suggested Citation

Jacobs, Bruce I., Is Smart Beta State of the Art? (May 7, 2015). The Journal of Portfolio Management, Vol. 41, No. 4, Summer 2015, Available at SSRN: https://ssrn.com/abstract=2628345

Bruce I. Jacobs (Contact Author)

Jacobs Levy Equity Management ( email )

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