Smart Beta products have been enjoying large inflows world-wide for some time now, thanks to their unique positioning between traditional and index funds. While their objective is to deliver benchmark-beating returns, like traditional funds, Smart Beta funds do so at much lower fees.
How sensitive a share price is to market movements, was called its beta. As finance theory developed, investors realised that there is another set of drivers of share prices, namely investment styles. As time goes by and things become clearer, they react more and more in line with new information. This causes a trend. And due to herd behaviour, leading market participants start, and followers extend these trends that investors can exploit.Share prices sometimes overreact and move into value territory after bad news or when themes or sectors temporarily fall out of favour. Warren Buffet describes the philosophy behind value investing well – “price is what you pay, value is what you get”.
What is “quality” investing? ADVERTISEMENT CONTINUE READING BELOW If quality is ingrained in a company’s DNA, it would show up in key profitability and stability indicators. Profitability measures such as asset turnover, operating margin, return on assets and return on equity indicate how efficient a company is in producing earnings. But earnings also need to be stable and repeatable.