Finding Focus in Smart Beta
If you ask investors what type of stocks they would like to invest in, chances are they would answer that they want cheap stocks that have sound businesses and potential for significant returns. Beyond common sense, over 50 years of research supports this view: that inexpensive stocks tend to outperform more expensive stocks (value); healthy companies tend to outperform less healthy companies (quality); and lower volatility stocks tend to generate a higher risk-adjusted return than high volatility stocks.
The adoption of smart beta strategies has been one of the most powerful trends in investing as they offer investors a rules based approach to harness specific drivers of risk and return, known as “factors.” Many investors are rethinking their core exposures and using smart beta as a way to aim for better risk-adjusted returns in an efficient manner. Overall, smart beta provides the potential opportunity to capture specific factors that active managers commonly seek exposure to, while preserving the benefits of traditional passive approaches, including transparency, consistency and low cost.
The case for multi-factor investing
In today’s environment of heightened market uncertainty, combining factors may just be the kind of stock mix your portfolio needs — offering both defensive and growth potential.
However, the prospect of sifting through hundreds of companies to screen for value, quality and low volatility (referred to as factors) can be daunting, even for investment professionals. If you had the advantage of utilising an index that targets all three factors and that gives you broad exposure beyond the Australian market, the opportunity would be within easier reach.
The SPDR® MSCI World Quality Mix Fund (QMIX), which tracks the MSCI World Factor Mix A-Series Index, for example, represents an equity portfolio with low volatility equity exposure with an equal focus on high quality and attractively valued firms.
The key benefit for combining value, quality and low volatility is the flexibility to adapt to different market environments. Investors sometimes focus on “timing” the market when conditions change, but given the unpredictability of market-impacting events (of late, Brexit and the Trump presidency) investors may find it opportune to think more about their “time in the market”, focusing on the long term.
Learn more about SPDR® MSCI World Quality Mix Fund (QMIX).
Issued by State Street Global Advisors, Australia Services Limited (AFSL Number 274900, ABN 16 108 671 441) ("SSGA, ASL")
AUTHOR
Partner Article
Recommended for you
Australian property prices are rising again, presenting a compelling opportunity for investors. For the first time in four years, every Australian capital city recorded simultaneous quarterly price growth—fuelled by recent RBA rate cuts, ongoing housing shortages, and renewed investor appetite.
Quality sleep is crucial for finance professionals who often analyse critical data. Learn how it can impact their productivity in this blog.
Here are three big ideas.We all know that we are standing at the edge of a profound transformation in how financial advi...
Photo Courtesy of Akif CapitalThe word "tariff" often sparks immediate fear in economic circles, conjuring images of the...
