What Investors Need to Know
What Is Smart Beta?
Smart beta is a way of investing that combines the benefits of passive investing and the advantages of active investing strategies.
Smart beta derives from the capital asset pricing model (CAPM), developed in an attempt to define the relationship between risk and return. As part of this model, beta is a measure of volatility or systemic risk of a security compared with the broader market. Over time, economists have elaborated on CAPM to explore a number of other factor premiums—factors like momentum and growth that can help to better explain and predict the relationship between risk and expected return.
Key Takeaways
- Smart beta seeks to combine the benefits of passive investing and the advantages of…
