Friday, May 16, 2014

Smart and strategic beta


Morningstar has been pushing the concept of strategic beta. There are now so many definition on beta it is hard to get them all straight, but there have been some nice graphics to show the value-added from thinking through beta schemes. The key point is simple. Don't pay extra for beta that you can get cheap.

Strategic beta the portfolio combination of all the different beta choices. In the end porfolio managers have to determine the combinaton of betas in the porfolio. Do you wnat passive market-weighted or equal weighted? Do you want a Fama-French tilt? Do you want risk parity or a minimum variance portfolio? It is a different level of thinking about portfolio construction. 

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