SMART

BETA
Presented by:
Leon D’silva
Rahul Choudhary
AGENDA
• Alpha & Beta

• Active and Passive Investing

• Smart Beta / Factor based Investing

• Exchange Traded Fund (ETF)

• Factors for Investing

• Stock examples
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• Strange ETFs
ALPHA (α) and BETA (β)

• Definition:
• “Alpha can be defined as the difference between a portfolio’s
risk-adjusted return and the return for an appropriate
benchmark portfolio” (Fuller, 2000).
• “Beta is the securities or portfolios price volatility relative to
the overall market” (Aber, 1973).

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Active and Passive Investing

• Active Investing is the strategy in which investors constantly

perform trade activities such as buying and selling of stocks
(Chen, 2018).

• Passive Investing is a strategy through which investors aim to

maximize returns with minimal trades and thereby reducing
transaction cost (Chen, 2018).

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What is Smart Beta / Factor Investing?

• "Smart beta is about building a portfolio of shares that

have particular characteristics in the belief that, over
time, investments with those attributes will deliver
returns that beat the stock market as a whole” (Dimson.
et al, 2017).

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Exchange Traded Funds (ETF)

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Factors for Investing

• Size: Derived from market capitalization which is a function of share price.

• Value: Takes into account book value and share prices.

• Yield: A measure of value in terms of percentage dividend yield on a share.

• Momentum: Takes past performance in terms of share price into

consideration for predicting future likelihood.

• Volatility: Analyses the behaviour of stocks (high / low volatile) in changing

market conditions.
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Source: Dimson, et.al ,(2017). In search of patterns (pp. 52-54). London: London Business
School.
Examples of low Volatility stocks prior,
during and post 2008 financial crisis

• Dollar Tree, Inc.

Source: https://ca.finance.yahoo.com/quote/DLTR
Examples of Large size stock prior,
during and post 2008 financial crisis

• Walmart, Inc.

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Source: https://ca.finance.yahoo.com/quote/WMT
STRANGE ETFs

Global X Millennials The Obesity ETF

Thematic ETF (MILN) (SLIM)

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THANK
YOU!
REFERENCES

• Aber, J. (1973). Beta coefficients and models of security return.

Lexington: Lexington Books.
• Chen, J. (2018). Active Investing. Retrieved from
https://www.investopedia.com/terms/a/activeinvesting.asp
• Chen, J. (2018). Passive Investing. Retrieved from
https://www.investopedia.com/terms/p/passiveinvesting.asp
• Dimson, E., Marsh, P., & Staunton, M. (2017). In search of patterns (pp.
52-54). London: London Business School.
• Fuller, R. (2000). Behavioral Finance and the Sources of Alpha. Journal
Of Pension Plan Investing, 2(3), 4.
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