Delving into a smart beta investment strategy

Julie Brownlee, Fsp Invest, 12 Aug. 2015

Tags: smart beta, what is smart beta, smart beta investment strategy, investment strategy, investing,



When reading about different investment products, you may have come across the term ‘smart beta’.

So what does smart beta mean? And what does a smart beta investment strategy entail?

Read on to find out…



What is smart beta?


Smart beta describes a wide array of different investment strategies that aim to beat the performance of the market by investing in certain types of assets and securities that appear to outperform over the long-term.

For instance, take momentum investing. A lot of research suggests that stocks that have been performing well are more likely to continue to perform well. Or consider value investing. Shares with low valuations tend to outperform shares with high valuations.

By following a smart beta strategy, you stick to a set of rules to find shares that meet certain criteria and then invest in all of them.

Say you decide to follow a simple dividend-based smart beta strategy. You decide to buy 20 companies in the JSE’s Top 40 Index that have the highest dividend yields.


What type of investment strategy is smart beta?


A smart beta strategy sits between passive investing and active management.

Passive investing involves tracking a particular index.

Active management involves a fund manager picking individual stocks using a number of different criteria. This is different to a smart beta strategy where you methodically buy shares as long as they meet your set criteria.

The criteria used in investment strategies like value investing and momentum investing are known as factors. And smart beta is sometimes known as factor investing.

So there you have it. Delving into a smart beta investment strategy.

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