Abstract
Smart beta offers passive implementation, low fees, transparency and potentially better risk-adjusted returns relative to both traditional capitalization-weighted benchmarks and actively managed funds. But are smart beta strategies a replacement for active managers? <b>Kenneth Winther of Tryg</b> in Denmark and hiscolleague <b>Søren Steenstrup</b> felt that the research on smart beta’s superior performances was focused on US retail investors, not institutional investors. In <b><i>Smart Beta or Smart Alpha?</i></b> they explain how they constructed actively managed institutional equity portfolios to capture the most widely used risk factors in smart beta strategies: value, size, low volatility and momentum. They found that other than the momentum portfolio, the actively managed portfolios generated superior absolute and risk-adjusted return, even after costs. They call this smart alpha.
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