Investors underestimating smart beta risks, academics warn

Investors warned over opaque methodologies and crowded trades

Felix Goltz, Edhec-Risk Institute

Smart beta indexes, in their various guises, have succeeded in staking out the middle ground between passive and active fund management. Unlike traditional cap-weighted indexes, they use a rules-based systematic weighting and track factors such as volatility or momentum, with the aim of delivering superior, diversified returns.

But some corners of the market warn that investors may be underestimating certain risks inherent in following smart beta strategies. Academics and other market