Transparent rules-based index-tracking portfolios that employ alternative weighting schemes have grown rapidly in the last decade, especially within equities. These passively managed factor portfolios can be constructed in many ways, ranging from relatively simple rules-based approaches that...

This chapter delves deeply into an area of rules based portfolio construction which has largely been overlooked. We discuss the impact of screening and weighting decisions on portfolio characteristics and performance. We show how this occurs through the effect of screening and weighting...

We discuss the extension of rules-based factor portfolios to a long-short framework. Advanced beta (or smart beta) involves capturing well-known factors in simple rules-based ways. Long-short factor portfolios have historically provided compelling performance even after costs are accounted for....

Many investors are starting to explore ways to integrate environmental, social and governance (ESG) considerations into their portfolios. Factor portfolios and indices which integrate ESG allow investors to capture both the long-term durable factor premia while allowing them to invest in...

Rules-based factor portfolios combining multiple factors have become increasingly popular in recent years. One often-asked question concerning portfolio construction is whether combining individual factor portfolios is equivalent to building a bottom-up multi-factor portfolio. The latter has...

What does success look like for smart beta indices? Here, we argue that success is the ability of an index to provide a strong and consistent level of exposure to the targeted factor(s). Moreover, exposure should be achieved in a risk aware way. Risk taken relative to the cap-weighted benchmark...

In this article, we propose a framework for building advanced beta (factor) portfolios in a benchmark-centric context. The intuition behind benchmark-aware advanced beta portfolios is simple – overweight securities that rank high on the characteristic, or factor, the portfolio is meant to...

The latest wave in advanced beta, also known as smart beta, factor investing, and risk premia investing, among other names, has focused on combining multiple factors in one portfolio. One of the more widely discussed combinations has been Value, Low Volatility, and Quality, which results in a...