Smart Beta is the Gateway Drug to Risk Factor Investing

Abstract

The most common strategies using risk factor approaches are found on the opposite ends of the complexity spectrum: simple, long-only equity factor strategies (i.e., smart beta) and multiasset class long/short risk premia approaches that often employ leverage and derivatives. The space between these two poles is just starting to be explored, as risk factors become a more common feature of both portfolio attribution and portfolio construction. Today’s simple factor smart beta portfolios can be extended across multiple asset classes, coupled with shorting, in order to approach a diluted risk premia approach.