Enhance portfolios with
Smart Beta strategies

What is Smart Beta?

Smart Beta strategies primarily focus on factors that have historically been persistent drivers of returns across equities and other asset classes. Whether they use a multifactor or a single factor approach, Smart Beta strategies give investors the potential to fine tune their exposures and reduce unintended risks. As a result, using Smart Beta strategies can result in a more deliberate allocation to potential sources of risk and return.

What is Smart Beta?

Sara Shores, Global Head of Smart Beta for BlackRock, explains how smart beta seeks to
• Enhance returns
• Improve diversification
• Reduce risk

Exploring factors

Factors are time-tested sources of historical returns within and across asset classes that are at the heart of Smart Beta strategies. Institutional investors and active managers have been using factors to build portfolios for decades. While the concept of factors isn’t new, the use of factors is being revolutionised by technology. Advances in financial analytics mean large amounts of market data can be screened with blinding speed, allowing factors to be isolated and surfaced with greater precision.

Types of factors

There are two main types of factors that have driven historical returns: macroeconomic factors, which capture broad risks across asset classes; and style factors, which help to explain returns and risk within asset classes.


Macroeconomic factors capture broad risks that exist across asset classes. Our research suggests that risks associated with economic growth, real rates, inflation, credit, liquidity, and emerging market factors explain over 90% of asset class variation.

exposure to the
business cycles


Lending to companies,
as opposed to governments

Bearing risk of rising rates


Absorbing the additional
political and economic risk
from investing in emerging markets

Assuming exposure to changes in prices


Holding illiquid assets


Style factors explain risks and returns within asset classes, including not just equities but also fixed income, commodities, currencies, and even private markets like private equity and real estate.

Stable stocks can potentially outperform
more volatile stocks on a 
risk-adjusted basis


Financially healthy firms
have typically performed
better over time

Stocks with strong
recent performance have tended
to maintain higher returns


Small, high-growth companies
have tended to outperform
their larger counterparts

Inexpensive stocks relative
to fundamentals such as
price-toearnings have
tended to outperform


If you have any questions or would like to find out more about Smart Beta strategies, please contact your investment consultant or relationship manager.