Abstract
Today’s most common strategies using risk factor approaches are found on the opposite ends of the complexity spectrum. On one end lie simple, long-only equity strategies based on factor tilts, such as low volatility, value, and momentum. Smart beta, at its most basic, is a good example. At the other end are the more complex, multi-asset-class, long/short, risk premia approaches that often employ leverage and derivatives. In Smart Beta Is the Gateway Drug to Risk Factor Investing, published in the Special Issue 2017 of The Journal of Portfolio Management, Eugene Podkaminer of Callan Associates establishes the two poles and explains the many opportunities that exist in the middle. As risk factors become a more common feature of both portfolio attribution and portfolio construction, the space between these two poles is just starting to be explored. Today’s simple factor smart beta portfolios can be extended across multiple asset classes, and coupled with shorting, may constitute a robust and diversified risk...
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