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The Fairtree Monthly Market Insights provide our clients with a brief summary of the diverse and affluent range of solutions we offer.  "Insights" outlines performance attribution characteristics, accompanied by monthly analysed risk-return metrics’ on their portfolios.

Click here to download the latest Monthly Market Insights (31/03/2016).
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MULTI-FACTOR SMART BETA AS AN INVESTMENT STRATEGY


Author: Rademeyer Vermaak
(Equity quantitative portfolio manager)

 
A Global Wave of Change

The rapid growth of the Smart Beta investment industry over the last decade has been nothing short of extraordinary. Morningstar (2015) reported that assets under management have more than doubled since 2012, with investors globally realizing the potential of informed passive investment strategies. Smart Beta, systematic- or factor investment products are solidly grounded in Nobel-prize winning academic literature and harness the latest developments in computing power, combined with the wide availability of data, to create an investable product that boasts the intuitive information content of an active investment product with the benefits of low cost and transparency found in a passive solution.

Swimming with the tide

To put the power and potential of Smart Beta into relative perspective, let’s consider a simple analogy. Consider a shoal of fish swimming down the warm Mozambican current. Storms, the tides and strong winds have an effect on the current, and thus the speed of the fish in the current. However, within the shoal, there are certain characteristics that determine the speed of the individual fish, besides just the current. These are, e.g., the length and weight of a specific fish.

Similarly, all the stocks on the JSE (the market) are affected by economic storms,such as global crises, and strong winds,such as quantitative easing. However, within the market, there also certain characteristics that determine the relative returns of a stock besides just the market. These are, e.g., the Quality and Value of a stock, as famously used by Warren Buffett and Benjamin Graham.


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