Tags: Smart | beta | investment | funds

Roubini: The Case for Smart Beta Investment Funds

By    |   Wednesday, 29 July 2015 07:01 AM

Both passive and actively-managed investment funds have fundamental flaws, says star economist Nouriel Roubini of New York University. But smart beta funds, a hybrid between the two, can offer superior returns, he says.

As for passive funds, they offer low fees, he acknowledges. "But it yields only the sum of the good, the bad, and the ugly, because it cannot tell you whether to buy advanced economies or emerging markets, and which countries within each group will do better," Roubini writes on Project Syndicate.

As for actively-managed funds, they're expensive, and 95 percent of them underperform their benchmarks, Roubini notes.

Smart beta funds are passive but don't blindly follow an index. For example, you can use quantitative rules to adjust the fund's holdings.

"If you weed out most of the bad and the ugly, you end up picking more of the good apples," Roubini explains.

"Weeding out the bad and the ugly based on these scores, and thus picking more of the good apples, has been shown to provide higher returns with lower risk than actively managed alpha or passive beta funds."

As for the downside, smart beta exchange-traded funds have fees that are higher than standard, passive ETFs, Ben Johnson, director of the Morningstar's passive funds research, tells Bankrate.com.

In addition, smart beta funds can rack up inferior risk-adjusted performance compared to standard passive funds, just as easily as they can achieve superior returns, he says. "The math of being active can cut both ways."

Elsewhere on the investment front, many Americans who graduated from college this spring are now starting jobs that pay them enough to begin putting something away for retirement.

Mike Sorrentino, chief strategist at Global Financial Private Capital, has several investment tips to offer these millennials. That includes "invest in equities," he writes on MarketWatch.

Recent college graduates should place all of their savings in stocks, Sorrentino advises. And why? "Equities have delivered an average annual return of 10 percent, which is the largest of any major asset class," he says.

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Both passive and actively-managed investment funds have fundamental flaws, says star economist Nouriel Roubini of New York University. But smart beta funds, a hybrid between the two, can offer superior returns, he says.
Smart, beta, investment, funds
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2015-01-29
Wednesday, 29 July 2015 07:01 AM
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