Smart beta strategies: too clever by half?

The hunt for security over yield has seen surge of interest in so-called smart beta strategies. But while many smart beta indexes have outperformed the market, can they provide a cost-effective and fit-for-all alternative to traditional benchmarks? Vita Millers reports

Ask five people what they understand by smart beta and you will get five different answers, with at least two or three elements contradicting one another. Generally industry experts agree that, at its simplest, smart beta refers to an investment process involving an index or stock selection based on something other than market capitalisation or, put another way, investments that aim to ‘sell alpha in a passive format'. Beyond that, even the term ‘smart' generates difficulties. The word is