Alternative beta strategies

February 10, 2016

Market capitalization weighted indices have historically been the most widely used strategies to achieve a passive exposure to equities markets, or capture equities beta. However, we have seen a surge of strategies called alternative betas (or sometimes “smart betas”) that, using different index construction methodologies, aim to provide a passive exposure to alternative sources of equity returns, or equity factors.

This paper begins by reviewing the existing index construction methodologies used to achieve equity market beta exposure, and then turns to analyzing alternative beta strategies that aim to provide exposure to Value, Momentum, Low Volatility, and Quality as alternative sources of equity risk premia in a passive, index-like way.