Definition
Smart beta (factor investing) strategies weight index components by factors like value, momentum, quality, low volatility, or size rather than market cap. They aim to capture risk premiums or reduce risk through systematic, rules-based approaches. Smart beta sits between pure passive indexing and active management.
Example
A minimum volatility smart beta ETF weights stocks by their historical volatility, reducing overall portfolio risk.
FAQ
What is Smart Beta?
Index strategies using alternative weighting schemes beyond market cap.
Why is Smart Beta important?
Smart Beta helps investors evaluate investment strategies and make more informed decisions.