Smart Beta
Rule-based investing driven by financial
Forms of Equity Investing
Active Investing
Decision of Fund Manager
Smart Beta
Passive Investing
Market Returns
Active Investing
- Overwhelmingly, investors pursue Active management with the goal of outperforming index by way of astute selection of sectors and stocks.
- Belief is that the manager possesses certain qualities that allow him or her to identify superior investments. Presumably, the manager’s process cannot be replicated with simple rules
- In the Journey, the manager forms a narrative about why an investment has strong prospects and monitors the investment to ensure it stays true to this narrative
Factor / Smart Beta
- Factor investing has established itself as 3rd Pillar of investing between Active and Passive as many active managers have not been able to deliver consistent Alpha
- Most Active and Passive Funds are “capitalization-weighted” Strategies. Here the Smart Beta Strategies come in and create consistent Alpha at low cost for investors
Passive Investing
- Index Funds/ETF define the Passive form of Investing
- Is the Only form of investing with a belief in efficient markets
- The simple thing that works for Passive is low cost and it is the root cause of underperformance of many active managers
History of Factor Investing
Factor investing is an investment approach that involves targeting specific drivers of return across asset classes. There are two main types of factors: macroeconomic and style. Investing in factors can help improve portfolio outcomes, reduce volatility and enhance diversification.
We have considered factor investing/smart beta investing in the context of equities as an asset class. The endeavour here has been to construct equity portfolios with single or multiple factors with the objective of reducing volatility and outperform benchmark over 3-to-5-year market cycle.
At the fundamental level, factors relating to equities include Size, Momentum, Value, Volatility, Alpha, Quality among others.
Equity strategies
Market Leaders
- Concentrated Portfolio of 15 Stocks with Sector Cap at 30%
- Portfolio construction based on Single Factor
- Long only Large cap Strategy
- Portfolio rebalancing based on output of the Quantitative Model
Alpha
- Long only Multi cap Strategy.
- Portfolio of 25 Stocks with Sector Cap at 30%
- Portfolio construction based on Multiple Factors
- Portfolio rebalancing based on output of the Quantitative Model
New Horizons
- Long only Mid and Small cap Strategy.
- Portfolio of 20-30 Stocks with Sector Cap at 35%
- Portfolio construction based on Multiple Factors
- Portfolio rebalancing based on output of the Quantitative Model
The legacies we build
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