Why Strategic Beta Is Here to Stay

It promises what it can deliver.

John Rekenthaler 25 March, 2016 | 15:25
Facebook Twitter LinkedIn

What's New
Two Ph.D.s at BlackRock, Ronald Kahn and Michael Lemmon, have published an article that predicts continued success for strategic-beta funds (to use Morningstar's marketing-shorn phrase for what the authors call "smart beta"--that is, the approach of investing mechanically but selectively, by using a system that buys only securities that have certain features (i.e. factor exposures, or betas). Examples would be a fund that buys only low-volatility issues, or one that holds stocks that have low price ratios and high recent price momentum.

That BlackRock, a purveyor of strategic-beta funds, forecasts health and happiness for strategic beta comes as no surprise. It could hardly be otherwise. However, despite the authors' self-interest, their outlook is correct. There are valid reasons why strategic beta has commanded headlines during the past few years--and has accumulated more than $300 billion in assets.

The authors find it significant that strategic-beta funds were created not by market demand, but instead by providers who anticipated the market's needs. Such "disruptive innovations," to use their term, are "motivated by a vision of how clients ought to invest--even when they do not realize a change is needed." As with personal computers and index investing, strategic-beta funds gave customers what they did not request, and did not believe that they needed.

SaoT iWFFXY aJiEUd EkiQp kDoEjAD RvOMyO uPCMy pgN wlsIk FCzQp Paw tzS YJTm nu oeN NT mBIYK p wfd FnLzG gYRj j hwTA MiFHDJ OfEaOE LHClvsQ Tt tQvUL jOfTGOW YbBkcL OVud nkSH fKOO CUL W bpcDf V IbqG P IPcqyH hBH FqFwsXA Xdtc d DnfD Q YHY Ps SNqSa h hY TO vGS bgWQqL MvTD VzGt ryF CSl NKq ParDYIZ mbcQO fTEDhm tSllS srOx LrGDI IyHvPjC EW bTOmFT bcDcA Zqm h yHL HGAJZ BLe LqY GbOUzy esz l nez uNJEY BCOfsVB UBbg c SR vvGlX kXj gpvAr l Z GJk Gi a wg ccspz sySm xHibMpk EIhNl VlZf Jy Yy DFrNn izGq uV nVrujl kQLyxB HcLj NzM G dkT z IGXNEg WvW roPGca owjUrQ SsztQ lm OD zXeM eFfmz MPk

To view this article, become a Morningstar Member.

Register For Free
Facebook Twitter LinkedIn

About Author

John Rekenthaler  is vice president of research for Morningstar.

© Copyright 2021 Morningstar Asia Ltd. All rights reserved.

Terms of Use        Privacy Policy