Smart Beta and the Evolution of Factor-based Investing

Smart Beta funds were launched more than a decade ago, but it is only recently that they have started gaining traction as more investors are moving away from active portfolio management. As Smart Beta factor investing transitions from niche to mainstream investing, the debate intensifies on the merits, methods and risks of Smart Beta strategies and factor-based investing. The Smart Cube’s white paper series addresses some of these issues. As momentum factor-based ETFs capitalised the most during 2017’s bull run (and YTD 2018), the first paper discusses how momentum factor-based strategies still have room to run.

Time to consider your momentum factor-based strategy toolkit?

Momentum has gained the status of a premium market anomaly and has proven to generate excess returns across many sectors, countries and asset classes over the past 18 months. But this rising popularity may start to turn against its performance as overpriced momentum based portfolios may lead to reduced profitability. 

In this paper, The Smart Cube draws investor’s focus on why we think it may be a good time to expand their momentum factor-based strategy toolkit and look for ways to incorporate advanced momentum factors in their portfolio. We explore the potential of a new premium factor – Momentum Slope – and examine its performance in comparison with traditional momentum-based factors and a custom Benchmark.

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