CHAPTER 6

SMART BETA AND OTHER URBAN LEGENDS

        Things are seldom what they seem. Skim milk masquerades as cream.

Gilbert and Sullivan

WE HAVE SEEN WHY WE want to focus on stocks and, to a lesser extent, bonds in our application of dual momentum. (If you do not understand that yet, please reread Chapter 5.) The question then arises, are there better ways to participate in stocks than through traditional capitalization weighted indexes?

Smart beta is a catchall term for rules-based strategies that do not use conventional stock market index capitalization weights. According to Russell Investments, smart beta “includes transparent, rules-based strategies that are designed to provide exposure to market segments, factors, or concepts.” Smart ...

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