Next Stop for Indexed Investing: Smart Beta ETF (1)
Next stop for indexed investing: smart beta etf
In terms of global trends, the Smart Beta category of fund products has accelerated over the past decade. According to global ETF statistics website ETFdb.com, as of the end of August 2018, the global Smart More than 1,200 beta ETFs and ETPs (exchange-traded products), with combined assets of nearly 7,000 USD billion, representing 14% of all ETFs and ETF assets. While China Smart Beta index products are still in the early stages of development, as of the end of August 2018, the underlying index fund There are 52 of them, with a combined size of about 20 billion yuan, accounting for only 5% of the size of all equity index funds.
Smart Beta is based on traditional index investment, through a systematic and regular quantitative approach. A new type of investment vehicle that optimizes the stock selection and weighting of an index in order to outperform the return of the benchmark index. Generally speaking, it is a middle ground between traditional passive and active investments, while retaining the high transparency and fees of traditional passive index products. The advantages of the index include low cost and ease of trading, as well as the rule-based embedding of proven investment theories or active management practices into the index. Get the excess benefits that are only possible with active management.
A new investment vehicle for outperforming benchmark index returns
(i) Features and advantages
Smart Beta's management of the index is more proactive than traditional market capitalization-weighted index strategies, by incorporating actively managed Smart Beta is a systematic and disciplined approach to optimizing index components and weightings on a regular basis in order to achieve market-beating outperformance. However, Smart Beta has the distinct advantage of indexing over traditional active management: a disciplined, disciplined, disciplined, and disciplined approach to indexing. Transparent, low-cost and efficient.
(ii) Development history
The theoretical development of Smart Beta can be divided into the following four stages.
Portfolio theory stage: 1934 Graham and Dodd intrinsic value theory (stock prices are based on the stock's intrinsic value as the base point for up and down fluctuations) and the subsequent Capital Asset Pricing Model (CAPM), Arbitrage Pricing Model (APT) model), and the efficient market theory (EMH) together form the modern portfolio theory, which lays the foundation for indexed investing. The theory states that excess returns on stocks arise from a risk premium, and that the early theory had only one risk - market risk - before Ross The APT model points out that there are other exposures besides market risk that contribute to excess returns.
Market anomaly discovery: In 1981, American economist Banz introduced the concept of size premium. Banz found that for most of the 20th century, small firms had higher stock returns and that the efficient market hypothesis could not explain the phenomenon. Since then, scholars have discovered other phenomena that cannot be explained by the efficient market hypothesis (e.g., the low-wave premium, the momentum premium, the quality premium, and the size premium). three factors, etc.) and questioned the use of market capitalization-weighted portfolios to represent market portfolios, arguing that in reality market portfolios are not the most efficient investment Portfolio.
Mispricing theory: after the discovery of the above visions, scholars began to try to find explanations from the perspective of behavioral finance. Marked by the publication of Shiller's Irrational Exuberance in 2000, behavioral finance theory has flourished since then. Based on mispricing theory, behavioral finance, and the principle of market regulation, Shiller states that market prices fluctuate around value. and exhibit mean reversion behavior. Based on the mispricing theory, a series of non-market value weighted strategies emerged and uniformly named Smart Beta strategies. In 2005, RAFI released the first Smart Beta index, the RAFI Fundamental Index, which confirmed that Over the long term, the index was able to generate higher returns than the market capitalization-weighted portfolio. Since then, major index providers have released their own series of Smart Beta indices, and fund companies have begun to develop their own Smart Beta indices. Smart Beta products.
Product deepening phase: After the international financial crisis, products for diversification, low volatility and risk control have developed rapidly in response to market demand. Smart Beta products targeting this objective have been favored by the market, and some innovative Smart Beta products have emerged. Beta products, such as leverage, options, ESG (socially responsible), etc.
