Smart beta strategies are best thought of as active rather than passive in nature, according to a white paper published by Vanguard Asset Management.
The paper said: “Smart beta strategies should not be considered beta, because these strategies’ weights differ meaningfully from the market capitalisation and therefore do not represent an asset class.
“Instead we believe that smart beta strategies are best thought of as an active investment strategies. This is because they reflect the specific views of index providers who proactively design indices to differ from the market-cap weights as determined by market participants.
“Like traditional active managers, these providers choose a set of securities based on their belief in the securities’ potential to outperform.”
Peter Westaway, head of investment strategy and chief economist for Vanguard’s Europe investment management group, also warned investors to be aware of the implications of smart beta products’ tilt towards certain factors.
An equal-weighted index, for example, suggests investors will be tilted towards small-cap stocks, he said.
Mr Westaway added: “As an investor it’s important that you have a good understanding of what you are getting yourself into.”
