From Morningstar: 2024-09-26 07:22:00

In 2006, Willis Towers Watson allegedly invented the term “smart beta,” combining the concept of beta and factors influencing stock returns. This term describes passively managed portfolios that seek to improve upon standard indexes by using mechanical rules to construct superior portfolios.

Following the rise of smart beta, the official term “strategic beta” has been adopted by researchers, including Morningstar. Strategic beta funds are passively managed, cheap, and hold steady to their investment approaches. These funds now control $2.3 trillion in fund assets, but their success remains a topic of debate.

While originally optimistic about strategic-beta funds, Jack Bogle has since criticized them, calling them “stupid.” He warned investors against chasing performance and emphasized the pitfalls of following hot factors when making investment decisions.

Analysis shows that the first generation of strategic-beta investors invested rationally but did not profit from their decisions, earning less than the Vanguard Total Stock Market Index. Current trends indicate a shift towards growth funds, in line with Bogle’s warning about “hot factors” influencing investor behavior.



Read more at Morningstar: Was Jack Bogle Right About Smart Beta?