Good, better, beta
STEPHEN CRANSTON: The ABCs of smart beta investment strategies
There is much research to show that using a factor, for example favouring small caps over large caps, adds value to portfolios
I am instinctively a supporter of smart beta investment strategies. Instead of blindly following an index, the managers pick a number of compelling themes, known as factors. The best-known of these funds is Rob Arnott’s fundamental index, or Rafi. This measures shares on metrics such as dividends paid and cash flow. It is indifferent to the price of the share, and many of the tame actuaries I consult disagree with this approach (not that I have ever met a wild actuary). Many may be under the illusion that Rafi is the only smart beta strategy. All credit to Arnott, a superb marketer who appointed the media-savvy Prieur du Plessis and Paul Stewart to represent the product here in SA. There is much research to show that using a factor, for example favouring small caps over large caps, adds value to portfolios. These factor premiums have been around for decades. Academics say some have a rational basis and others a more behavioural basis, but they seem to work — though not at every poin...
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