Warnings About Smart Beta From Smart-Beta Index Provider

A white paper on smart-beta investing released this week by “veteran quant” Eric Shirbini of ERI Scientific Beta says that “second-order risks and exposures aren’t being sufficiently accounted for by investors or disclosed by providers.” This according to a recent article in Institutional Investor. “Just like monitoring the style drift of active managers,” writes Shirbini, “investors need to monitor the risk dynamics of factor strategies.” Specifically, Shirbini cites three categories of risk to be monitored:… Read More

Investing Like Buffett and Soros Could be Within Reach

New research shows that “ordinary” investors may be able to emulate the extraordinary tactics of legends such as Warren Buffett or George Soros by using factor-based strategies. This according to Validea CEO John Reese in last week’s issue of  The Globe and Mail. The study, conducted by AQR Capital Management, compared returns for “superstar investors to portfolios it constructed with a small set of buy and sell signals that tracked the investing styles of Mr.… Read More

Asness vs. Arnott on Smart Beta, Factor Timing, and Performance Chasing

Cliff Asness, co-founder of AQR Capital Management, added fuel to the debate over “smart beta” investing with a recent paper attacking arguments made by Rob Arnott of Research Affiliates. Arnott, once understood as a proponent of smart beta approaches due to his research and development of fundamental indexing, claimed that many smart beta exchange traded funds “have succeeded solely because they have become more and more expensive.” In an argument that Asness describes as alarmist,… Read More

Adding an Acceleration Factor to Momentum Investing

In a post on the CFA Institute’s Enterprising Investor blog, Joachim Klement of the CFA Institute Research Foundation highlights research suggesting that “one can improve the results of traditional momentum investing by looking at momentum acceleration.” Klement expresses some skepticism regarding momentum investing – “why should prices go up just because they have gone up in the past?” – and notes the risk of “momentum crashes.” Nonetheless, he notes that Cliff Asness and others have… Read More