FTSE Russell

Insights | The intuitive foundations of smart beta

Nearly half of global asset owners are now investing in smart beta1, with interest continuing to rise year- over-year. The term “smart beta” encompasses an increasing variety of strategies, with many new smart beta products being launched each month around the world. Smart beta products typically aim to replicate indexes that embed the strategies’ underlying methodologies.

Although some newer index approaches rely on detailed quantitative modelling, smart beta indexing doesn’t have to be associated with complexity. In this Insights, we focus on some smart beta index construction approaches that follow relatively simple, intuitive weighting schemes. And, regardless of their methodology, all FTSE Russell smart beta indexes follow transparent, consistent rules in order to achieve the stated index objectives.

Smart beta in context
An increasing number of investors worldwide are using index-based approaches to construct and manage their portfolios. The objective of a manager of an index-based (or “passive”2) investment portfolio is to replicate the index’s return, before fees and costs.

According to a 2017 report3 by Moody’s Investor Services, passive investments now account for US$6 trillion of assets globally and 29 percent of assets under management (AUM) in the US. Moody’s predicts that the continuing adoption of index-based investment products will lead to passive funds’ market shares in the US exceeding 50 percent by early in the next decade.

Read the complete white paper at the link beneath Related Files

Head Office
10 Paternoster Square
London
EC4M 7LS
United Kingdom
Company website:
https://ftserussell.com

What’s new

  • Why climate change also matters for government bond investing

    Why climate change also matters for government bond investing

    White papersMon, 21 Oct 2019

    Henry Odogwu, Head of the asset owner group Europe at FTSE Russell discusses how European asset owners are looking to extend environmental, governance and social (ESG) considerations beyond equity into fixed income

  • Rock bottom interest rates boost real estate

    Blog | Rock bottom interest rates boost real estate

    White papersThu, 10 Oct 2019

    Since the start of 2018, we have noticed remarkable outperformance of real estate equities. In the last 18 months, the FTSE EPRA Nareit Developed Index has outperformed the aggregate equity index, the FTSE Developed Index, by around 15% 

  • Investing in Listed Real Estate

    Investing in Listed Real Estate

    White papersThu, 10 Oct 2019

    Real estate is a popular asset class. One of the ways to get exposure to it is via listed real estate companies. In this report FTSE Russell looks at practical considerations of investing in listed real estate:

  •  Equity and Fixed Income Country Classification 2019: The headlines

    Equity and Fixed Income Country Classification 2019: The headlines

    White papersTue, 1 Oct 2019

    We have just announced the results of the annual Country Classification Review for countries monitored by its global equity and fixed income indexes. Our approach to country classification is informed by feedback from a broad set of market participants and provides investors with a framework for evaluating and investing across asset classes in global equities and fixed income markets.

  • Falling too far? What sets fallen angels apart

    Blog | Falling too far? What sets fallen angels apart

    White papersFri, 27 Sep 2019

    When US investment grade bonds are downgraded and cross the ratings threshold into high yield territory, they join the sector known as “fallen angels.” And while they’re technically categorized as high yield (HY) bonds, it’s important to note that fallen angels were initially issued as investment grade (IG) credits. This is why they tend to have distinct characteristics that set them apart from the rest of the US HY bond market.

Search all our content