Smart Beta Sold In "Classic Bait And Switch" Environment

Smart beta and certain types of factor investing is an environment where “classic bait and switch is persuasive,” is being sold based on “backtested results that don’t match reality.” Such were thoughts from a lively panel discussion at the Morningstar investment conference in Chicago. The panel discussion was, to a degree, reminiscent in tone to a 2014 panel discussion where smart beta was categorized as more a marketing ploy than a financial innovation.

Look beneath the surface when understanding smart beta

On the surface smart beta, which Morningstar calls “strategic beta,” can look appealing. But what looks strong on a backtested...