WEALTH WATCH: SmartBeta offers compromise
Factor-based investing attractive to investors aiming to combine active and passive approach, writes Stephen Cranston
When investors look at the pros and cons of active and passive investing, SmartBeta looks like a convenient halfway house. The marketer who dreamt up the name "SmartBeta" deserves a lot of credit — they were previously known as the staggeringly dreary "factor-based investing". This involves modifying an index based on specific rules. The simplest form of SmartBeta is an equally weighted top 40 index. In this product each of the 40 shares would make up 2.5% of the index, whether Naspers and Richemont at the large end or Brait and Sappi at the tail. Satrix and Core Shares offer exchange-traded funds (ETFs) built on this basis. The best-known SmartBeta is Rafi, the Research Affiliates fundamental index, which is made of four different factors such as size, value and profitability. The father of Rafi is Research Affiliates boss Rob Arnott, who is to fundamental indexing what Colonel Sanders is to KFC. SmartBeta products that screen for low-volatility shares as well as those targeting mo...
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