Smart beta strategies: interest growing fast, says Robeco

The interest in smart beta investment strategies is strong and growing – and evidence suggests smart beta tools are able to offer superior returns, says David Blitz, head of quantitative research at Robeco.

Speaking in Madrid during the Summer University conference organised by the asset management company, Blitz (pictured) argued that smart beta as a new way of investing is gaining traction.

“Every investor should ask: is the capitalization weighted index efficient? This is not the case according to a large number of academic literatures which have suggested that various systematic strategies can offer superior risk-adusted performance,” Blitz said.

According to research by the quant team at Robeco, three smart beta strategies appear to be most interesting: value, momentum and low-volatility investing.

Portfolios using these strategies have delivered good premiums and superior performances. However, Blitz noted that while these strategies have been available for a number of years, questions still remain on the optimal portfolio allocation.

Institutional investors such as European pension funds are showing a significant allocation to smart beta investments. An example is the PGGM strategic equity portfolio which currently allocates 40% of its equity portfolio to three smart beta strategies: value, low volatility and quality.

Similar strategies have been adopted by Danish fund PKA. A recent study evaluating the active management of the Norwegian Government Pension Fund Global, one of the biggest institutional investors in the world, also recommended implementing a smart beta approach.

Looking ahead, the quant team at Robeco is pursuing client-specific follow up questions in terms of allocation to each strategy, and discussing how smart beta thinking can be applied beyond equity investments.

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