Feifei Li is a director in Research & Investment Management at Research Affiliates LLC and a visiting professor of finance at University of California, Irvine.
Vitali Kalesnik is an associate director in Research & Investment Management at Research Affiliates LLC and an adjunct professor of finance at San Diego State University.
Jason Hsu is chief investment officer at Research Affiliates LLC and an adjunct professor of finance at the UCLA Anderson Business School.


Vernon Lewis from CA posted over 4 years ago:

I have been thinking there must be a better way. Maybe you have found it.

John Portwood from LA posted over 4 years ago:

"Smart Beta" indices,in my opinion, will eventually become the new benchmarks for active manager performance comparisons.I have been involved in the development and application of quantitative strategies employing smart beta concepts for many years with market-beating long-term results. But the comparable indices were capitalization weighted, in hindsight a relatively easy target using these techniques.It will not be as "easy" to beat smart beta bogeys in the future. To say that the world of active professional money management will become more competitive is an understatement.

Paul Stadnik from OR posted over 4 years ago:

I cannot read the appendix; the resolution appears too small.

Jean Henrich from IL posted over 4 years ago:

Paul, to read the appendix, click on it. This will bring up a bar that says "click here to view full image." When you click on that instruction, the appendix will open as full size in a new page. You can read it online or use your browser print command to print the page full size.--Jean from AAII

D.E. from NY posted over 4 years ago:

Perhaps a discussion of technical terms like Sharpe Ratio, Information Ratio, and Tracking Error would be useful. That could go in another Appendix.

From the article, it sounds like tracking error is a bad thing, but I can imagine it might sometimes be caused by OUTPERFORMANCE. In which case, one ought to welcome it.

JW from NC posted over 4 years ago:

It is not clear to me that this study aqccounts for the expense ratio differences of the commerically available products.

A smart beta fund must overcome the drag of expense ratio and turnover costs to outperform a cap-weighted index fund's return. In a taxable account, tax inefficiency must also be overcome (but outperformance in a tax-deferred account would be good enough for many).

I look forward to more innovative research from RAFI on these and other issues.

Mike Philbrick from ON posted over 3 years ago:

Well written. The challenge for smart beta strategies is they still will lose large chunks of your capital in down markets. Down 47% A minimum variance portfolio vs down 55% in the cap weighted index does not "feel" different to the investor and is the precise place where so many investors make the exact wrong decision with respect to their portfolio. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2328254

John Blevens from CA posted over 3 years ago:

Very Informative article and comments as well. I have long believed the cap weighted index funds were not optimal investment strategies.

William Sanders from WA posted over 3 years ago:


SPY has an expense ratio of 0.09% and VOO has one of 0.05%. Their recent turnover has been 3% compared to the 6% in the article which is a much longer term average).
PRF has a ratio of 0.39% and turnover of 12% (long-term 14% from above).
RSP has a ratio of 0.40% and turnover of 37% (long-term 23% from above).
USMV has a ratio of 0.15% and turnover of 26% (50% from above).

As mentioned above, ignoring expense ratios and trading costs may be quite significant.

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