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At the beginning of the third millennium, especially the year 2002 Directed team "Auckland Athletics" One of the poorest clubs in the American baseball league at that time to defeat the biggest and richest clubs, including the giant "New York Yankees"After breaking several records for decades and winning an impressive number of games.
The revolution that this team witnessed at the time was behind the secret that only the team's coaches knew, but the secret was not kept secret for a long time , where it became obvious that "Billy Bean" General manager"Auckland Athletics" He changed the makeup of his team backwards using a weapon unknown to many at that time – statistical analysis and data analysis, ignoring the traditional way that baseball teams were directed..
Slowly, the American baseball teams began to follow "Auckland Athletics" Increase the use of statistical analysis in player assessment, which has had a positive impact on the level of the league and the strength of competition in the league..
The question now is whether something similar can happen in the investment sector, especially in the stock market. In other words, is there a way that can help us as investors to use and process this huge amount of financial and statistical data to identify the best investment opportunities?
There are two options
March 28 2017, Caused "Black Rock"- The largest asset management company in the world – A disruption and confusion in the global asset management industry, after his layoff 53 From its stock selection agents6 Billions of dollars of its funds managed in the traditional active way and convert them into managed funds according to one of its quantitative strategies.
The concern of the asset management industry at the time was not caused by the actions themselves but by the signals they gave on the future of management. active assets.
In recent years, it has been widely proven that the vast majority of active investment managers do not outperform the market after fees.. This has led many to think that the market superiority is very difficult and that it is foolish to waste time and money trying to do it..
But even if this belief is popular and the idea is popular among many investors, it is not accurate. In fact, the opposite is true. The problem is not that portfolio managers do not actively succeed in outperforming the market, as many of them are already able to do so, but before charging fees.
In simple terms, the problem is that the difference between portfolio and benchmark returns is affected by the high fees charged by the portfolio manager or the fund.. The alternative is portfolios or funds managed inactive, which allows the investor to walk the market and evolve with him..
Interestingly, however, the world's leading asset managers refused to remain trapped in this dichotomy and insisted on a third solution.. An alternative that can outperform the market but at a much lower cost than traditional fund managers. This alternative is a strategy "Smart Beta" Or "Smart beta"He said.
What's up?
Over the past decade, there has been virtually no investment strategy in the asset management industry that has earned the reputation it has earned. "Smart Beta", Which has allowed it to become one of the fastest growing investment categories, with the value of funds managed at an incredible rate reached 30% Annually over the period 2012 And2017, Before exceeding the trillion dollars at the end of last year.
But despite its vast reputation remains "Smart Beta" This is a mystery to many investors, especially individuals, perhaps because it is one of the most confusing investment groups in the marketable fund industry, as it lies between the active management and negative investment management..
But in the beginning, you should know that the fundamental purpose of the strategy "Smart Beta" Build a fund that can outperform its benchmark by selecting stocks that meet certain conditions, allowing it to outperform the benchmark while being exposed to a lower level of risk.
That is, the funds are built according to the strategy "Smart Beta" Focus on achieving better returns than reference funds (AND F) Traditional without being more serious. But how is it going?
To find out why the boxes differ "Smart Beta" For traditional reference funds, we must first know how traditional index funds work..
For example, in the main index of the Saudi market "Tasi" Weighted weight of available shares is used (Float market capitalization) In the ranking of the largest companies in the Kingdom depending on the size of the company or its market value. The larger the company, the higher its weight in the index, regardless of any other factor..
Managed cursor boxes then come inactive and build boxes that match their composition.. For example, if the weight of the business "S" In the indicator reached 13%, The shares of this company will represent the same proportion of the Fund's portfolio. However, the problem with this approach is that the large companies that make up the bulk of the fund are not necessarily the most profitable or the fastest growing..
This problem is already recognized by many investors, but at the same time, they can not do anything about it.. but why? Simply because the other option is that of actively managed funds that either fail to outperform the market or really succeed in outperforming the market and get higher returns that quickly end up in the pockets of fund managers..
In his book of the year 1973 subtitle "Wall Street Walk" Criticized the prominent economist at Princeton University " Burton Malnell" Active investment says: "A blindfolded monkey can be an investment portfolio as powerful as the experts."He said.
How it works "Smart Beta"?
In the midst of these circumstances emerged a strategy "Smart Beta" What helps the computer and the algorithms to determine the weights of the fund companies according to a certain set of standards. The more the arrow matches these criteria, the more weight it will have in the box..
Six factors determine the weight of any stock in a managed fund "Smart Beta" They are as follows:
1- Dividends: Large dividend stocks or high earnings growth.
2. low volatility: Shares with below average volatility.
3. Momentum: Stocks with a strong uptrend.
4. Quality of the bases: Companies with strong operational characteristics, for example, have high margins and strong sales.
5. evaluation: Shares with different valuation methods are traded below their intrinsic value.
6. small size: Small businesses have a preference.
The weighting of each Share of the Fund will be determined by its degree of compliance with these criteria, while changing the weighting of the Fund's Shares based on the potential evolution of those factors.. All this is done automatically without the intervention of the human element, that is why the box charges "Smart Beta" Are generally lower than actively managed funds, but at the same time higher than the expenses of funds managed inactive.
But the foregoing factors lead us to a very important point to emphasize is that funds managed so "Smart Beta" Are not similar, for two reasons: The first factor is that k"Evaluation" For example, it can not be calculated accurately and is subject to many estimates. The second is that there are many strategies "Smart Beta"This means that the fund "S" Orbit "Smart Beta" May not necessarily look like the fund "P" In the same way in orbit.
On the one hand it's the same "Smart Beta" On the other hand, active asset management in the quest for market superiority is similar to inactivity management, as both are not managed based on asset managers' estimates, but are managed with transparent methods, eliminating the need for ongoing analysis and research..
"Smart Beta" Between the past and the future
in a year 2016 Posted by American Management Company "Invesco" A study on strategic performance "Smart Beta" And the factors that underlie them during the period between 1992 And2015 Compared to the performance of the index "S & P 500 " Which includes the largest shares 500 A financial company in the United States.
The study concluded that the stocks to which the underlying factors apply are the method "Smart Beta" Managed to achieve higher returns than the index "S & P 500 " During 5 Economic cycles observed by the market during the period mentioned and against less risk.
in a year 2017 Investors pumped 92 Billions of dollars in funds managed by "Smart Beta", Followed by 56.8 Billions of dollars in the first nine months of the year 2018, Bringing the total assets managed by this type of fund to approximately 1.13 Billions of dollars in the world, according to the data of the company "Morningstar"He said.
With constant steps, the share has increased "Smart Beta" In the global circulation fund business in recent years, and is likely to maintain this momentum for the foreseeable future at least. Most funds managed in this way are concentrated in the United States and Europe remains "Smart Beta" Strange on the Saudi market.
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