PREVIEW
In land-scarce Hong Kong, recreational football players often have to venture to the top of buildings to hone in their dribbling, passing and shooting skills or play a match at many of the rooftop pitches, which are scattered across the urbanised vertical city.
Indeed, smarter optimisation of land in Hong Kong’s dense concrete jungle has innovatively allowed its residents to enjoy unique sporting and recreational amenities, which aren’t too different from those offered by bigger metropolises with ample spaces.
Likewise, in the world of indexing, having a smarter application to index construction—beyond the traditional market capitalisation(cap) weighted approach—could give investors more options and flexibility in the area of indexrelated investing.
An example of a progressive, non-cap-weighted approach to indexing is smart or strategic beta. It enables investors to reap some benefits of active management, such as researchbased security selection and exploiting market inefficiencies, while allowing them to enjoy the low-cost and systematic advantages of passive investing.
In this paper, we will explore the features and benefits of smart beta, and explain how this approach could help investors achieve better risk-adjusted returns as compared to investing in traditional market-cap-weighted index products.