Inside The ‘Smart Beta’ Hype

While Wall Street investment firms have done a very poor job of delivering good risk-adjusted returns to investors, their well-tuned marketing machines have done a great job creating demand for products where none should really exist. Their latest creation is a type of investment offering referred to as “smart beta.”

To ensure you understand why most of what is called “smart beta” is really nothing more than a marketing gimmick, we’ll begin with a definition of beta and a brief history of asset pricing models; namely, models that explain the sources of returns of diversified portfolios.

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