Smart Beta Wins The War; Holdouts Persist

May 31, 2016

[Editor's note: An earlier version misidentified Fischer Black as a Nobel Laureate, when it should have stated William Sharpe.]

When BlackRock finally stopped using the competing phrase "strategic beta" in 2015, I hoped that the "smart beta" terminology wars had come to an end. But just like Hiroo Onoda, the lone Japanese soldier from World War II who was found isolated on a Pacific island three decades later, still fighting a conflict he hadn't realized was over, a few holdouts are stubbornly persisting.

And what a confusing war it was! The following table lists just 12 of the many synonyms I've come across:

Some Past Synonyms For Smart Beta

It was only in September 2014 that a piece from BlackRock in Institutional Investor had argued that "The term 'strategic beta' better describes the products and strategies we've developed that seek to deliver exposure to the factors that are long-term drivers of asset class returns," but by January 2015, it published a paper titled, "Smart Beta: Defining the Opportunity and Solutions."

Deutsche Asset Management also recently waved the white flag of surrender, moving on from the "systematic beta" it advocated in an article in March 2015 to embracing the phrase "smart beta" in its May 2016 Monthly ETF Market Review (although their website's drop-down menus still refer to "strategic beta," so perhaps they are hedging themselves).

Similarly, I like to take some small credit for encouraging Source, Europe's largest independent ETF issuer, to switch from its vague "beta plus" to "smart beta" in early 2015. The websites of Lyxor and Amundi, two of Europe's largest ETF issuers, have also recently started to refer only to smart beta.

And it's no surprise that more and more market participants are settling on smart beta as their preferred term, as it's been consistently in use since 2000 or so, when Towers Watson is widely acknowledged as being the first to popularize it (although it defined it much more broadly than we think of it today—essentially everything that was neither "bulk beta" nor actively managed; thus, even including thematic indexes).

Research Affiliates has also long used smart beta for its suite of fundamental indexes, which launched in 2005 and powered the very first smart-beta ETFs. Now with over a 10-year live track record, and in excess of $100 billion of assets linked to its smart-beta indexes, it has some authority on the matter.


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