The dirty little secret behind "smart beta" investing

Some minor buzz has arisen among finance academics and professionals as a result of a paper by Ronald Kahn and Michael Lemmon, both of whom are employed by Blackrock, entitled The Asset Manager’s Dilemma: How Smart Beta Is Disrupting the Investment Management Industry. Here is the abstract:

Smart beta products are a disruptive financial innovation with the potential to significantly affect the business of traditional active management. They provide an important component of active management via simple, transparent, rules-based portfolios delivered at lower fees. They clarify that what investors need from their active managers is pure alpha—returns beyond those from static exposures to smart beta factors. To effectively position themselves for this evolution in active management, asset managers need to understand the mix of smart beta and pure alpha in their products, as well as their comparative advantages relative to competitors in delivering these important components.

As Blackrock is a supplier of "smart beta" fund products, are these authors talking their own book or is this truly a new form of financial disruption?

The full post is available at our new site here.



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As a reminder, here is a sample of some of past posts:

• Why I am bearish (and what would change my mind) May 2015
• Relax, have a glass of wine August 2015
• Why this is not the start of a bear market September 2015
• The reason why the bulls should be cautious about a January hangover December 2015
• Why this is a correction and not a bear market January 2016

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