SA’s smart beta providers are attempting to make their funds smarter by diversifying across multiple “factors” that have been identified as potential sources of returns higher than those the market can deliver.
But local managers, like their global counterparts, are also aware that investors in these single-factor funds may have to sit through long periods of underperformance because the factors typically deliver their best returns during different phases of the economy. The new fund will track a multifactor index constructed by an indexation business attached to leading French business school EDHEC, says Chris Rule, head of product at CoreShares.
While it may make sense to diversify across the different factors and benefit from the exposure to each at different points of the economic cycle, managers are not in agreement on how best to blend exposure to the different factors. The problem smart beta managers face is how to set rules to time the moves. Satrix has tested portfolios that tilted towards the best-performing factor or towards the factors with the best valuations , but the results were disappointing, Swartz says.