Financial Quotient

What is smart beta?

"Beta" describes the sensitivity of a security to swings in the market. It can be represented by indices and investment strategies based on market capitalisation (cap) weights. Market-tracking portfolios (intentionally or not) induce a number of portfolio construction biases.

"Smart" stands for a new way to build reference portfolios. With simple, transparent and rules-based portfolio construction techniques, you can build portfolios that are better aligned with investors' needs and remove the flaws of market-cap weighting, a standard set by passive investing.

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A version of this article appeared in the print edition of The Sunday Times on October 14, 2018, with the headline 'What is smart beta?'. Print Edition | Subscribe