In a sense, Smart Beta imitates the investment strategy of actively managed fund managers. Smart Beta strategy realizes its long-cherished wish of "beating the market" by adjusting the weight of different assets in its portfolio and emphasizing the role of factors such as scale, value, momentum and volatility. From this perspective, Smart Beta strategy is more like Alpha strategy.
Smart Beta is essentially an index investment strategy. According to CAPM model, Beta measures the risk and return of portfolio. Compared with the traditional market value-weighted index strategy, Smart Beta is more active in index management. Through systematic methods and active management, it optimizes the stock selection and the weight of index components in order to obtain excess returns and beat the market.
However, compared with traditional active management, Smart Beta has obvious advantages of indexed investment, such as periodicity, transparency, low cost and high efficiency.
Therefore, Smart Beta can be said to be between active and passive, between Alpha and Beta, in order to obtain excess returns higher than the traditional market value weighted index.
Smart Beta index can be classified from two dimensions, one is sample selection and the other is weight.
Sample selection: The single-factor index or multi-factor index that can effectively distinguish the market characteristics is used as the basis for stock selection, and the resulting combination can provide investors with tools to expose the risks of specific market factors, and correspondingly obtain the excess returns of these factors, such as value index, growth index, dividend index, mixed financial index, etc.
For example, the Shanghai-Shenzhen 300 portfolio with the same rights in the A-share market performs better than the real Shanghai-Shenzhen 300 index. A very important reason is that the scale factor effect of the A-share market is particularly obvious. In the long run, small-cap stocks have obvious excess returns compared with large-cap stocks.
In this way, our understanding of the portfolio can rise to the factor level, we can choose specific securities and let the portfolio focus on a specific risk factor, which is another idea of Smart Beta.
Weight: Usually, market indexes are weighted according to market value, such as the Shanghai and Shenzhen 300 Index. Firstly, 300 constituent stocks are selected according to certain conditions, and then their respective weights are determined mainly according to the total market value of 300 constituent stocks, and the corresponding weights with large total market value are also high.
However, SmartBeta still breaks this restriction on the basis of these 300 constituent stocks, but the weight of constituent stocks is determined by other methods in order to achieve a more "smart" combination than the traditional Shanghai and Shenzhen 300 Index. Several common weight optimization methods are: fundamental weight, equal weight, risk parity weight, minimum variance weight and maximum dispersion weight.