Mike Hunstad, Director of Quantitative Research at Northern Trust, says investors are looking for a “persistent form of alpha,” and active managers are unable to achieve consistent results. Seeking more stable returns, investors are turning to smart beta.
In this video, Mr. Hunstad describes smart beta as a “dichotomy.” On one hand, it’s a method to generate excess returns. On the other hand, it’s a “risk paradigm,” where we must recognize that while every factor – size, value, volatility, etc. – is a potential source of returns and of risk.
When talking about smart beta with institutional investors, the conversation has “changed dramatically” over the last few years, according to Mr. Hunstad. A couple of years ago, the focus was more on getting comfortable with the ideas, but now investors are all about implementation. “If smart beta is going to survive” into the future, explains Mr. Hunstad, it will be because the industry “got the implementation piece correct.”