Factor investing, sometimes referred to as smart beta, involves investing in or incorporating the analysis of specific factors. Factors in this context are historically persistent drivers of return.

Historically, portfolio performance was attributed to a combination of market return and investor skill (ie: alpha). Over time it has been determined that the alpha portion of a portfolios performance can be divided into two parts, namely: Factor returns and Alpha returns.

The factor returns portion can be attributed to well defined factors such as:

  • Volatility
  • Dividend Yield
  • Quality
  • Momentum
  • Value
  • Size

Investment factors such as the prior 6 have historically proven to have positive excess returns.

By analyzing your portfolios exposure to certain known factors you are able to determine whether your performance is coming from investor skill (ie: alpha) or simply exposure to these known factors.

Your portfolios asset allocation can then be adjusted accordingly based on whether you wish to increase or decrease factor exposure through specific smart beta ETF's.

By understanding your portfolios factor exposure you gain insight into whether or not you are generating real alpha returns over and above the factor returns.


Determine your portfolios exposure to factors that produce positive excess returns.

Determine if your portfolio has produced real alpha over and above the returns produced by known factors.

Understand where your portfolios returns are coming from.

Track your portfolios historical factor exposure and how it has changed over time.

Adjust your asset allocation to increase or decrease exposure to specific factors through the use of smart beta ETF's.

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