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Rekenthaler Report

Why Strategic Beta Is Here to Stay

It promises what it can deliver.

What's New
Two Ph.D.s at BlackRock, Ronald Kahn and Michael Lemmon, have published an article that predicts continued success for strategic-beta funds (to use Morningstar's marketing-shorn phrase for what the authors call "smart beta"--that is, the approach of investing mechanically but selectively, by using a system that buys only securities that have certain features (i.e. factor exposures, or betas). Examples would be a fund that buys only low-volatility issues, or one that holds stocks that have low price ratios and high recent price momentum.

That BlackRock, a purveyor of strategic-beta funds, forecasts health and happiness for strategic beta comes as no surprise. It could hardly be otherwise. However, despite the authors' self-interest, their outlook is correct. There are valid reasons why strategic beta has commanded headlines during the past few years--and has accumulated more than $300 billion in assets.