Smart beta

Rules-based strategies that weight holdings by a factor such as value, size, low volatility or quality instead of market capitalisation. Transparent and cheap like an index, but a deliberate tilt away from it.

Where you will meet it

Smart beta appears in 2 learning outcomes on the CFA syllabus. A few of them:

• Contrast factor-tilted index strategies with plain market-cap-weighted indexing
  CFA Level III · Portfolio Management Pathway

  “Factor-based (smart beta) strategies follow rules-based indexes that tilt towards exposures such as value, size, momentum, quality or low volatility, seeking a return premium or lower risk.”

• Set out the strategic choices in implementing an allocation, including how passive or active to be and which vehicles deliver each type of mandate
  CFA Level III · Asset Allocation

  “Factor-based or smart beta strategies sit between the two.”

Practise it

• Today's practice question One question, with every wrong option explained.
• Free Level I diagnostic test Twelve questions that show which topics to start with.
• Free finance calculators Check your arithmetic on the exam's core formulas.

All terms beginning with S · Glossary