Smart beta is gaining popularity worldwide, and it is expected that it will gain more traction in Asia as time goes by as the basic concept of implementation efficiency should be "just as appealing to Asian investors as it is elsewhere", according to David Tamir (pictured), chief investment officer and co-founder at Oasis Investment Solutions, a Swiss investment firm.
"Smart beta is a good concept with a misleading name," said Tamir."A more appropriate name would be 'different beta' or 'beta done differently' but obviously is it not as nearly as catchy of a name as smart beta."
Structured products provide an efficient way to deliver some of these strategies as "through the inherent use of derivatives, structured products offer the ability to define the risk/return profile of the product in a very precise way", according to Tamir. "It is a different way of 'doing beta differently' than through 'smart beta' products," he said.
Tamir believes the two terms can be regarded as complementary to each other rather than mutually exclusive.
However, investors, especially private investors, still tend to have some degree of a home-bias or familiarity-bias, possibly because it provides them with a better sense of control, they invest in something which they perceive as more familiar to them with less uncertainty involved, according to Tamir.
"Structured products are more complex investment instruments, so choosing a familiar underlying probably helps ease some of that sense of complexity," said Tamir. "A typical investment portfolio would include both structured products and smart beta products, alongside traditional, truly passive index trackers and some craftsmen as well."
Many of the smart beta products implement active management concepts that have been around for ages and in that sense, "making a decision to go with a smart beta exposure as opposed to the traditional beta exposure, is an active investment decision", according to Tamir.
"However, there is no guarantee that a specific active strategy would produce superior risk-adjusted performance in a given investment period," He said, adding that the appeal of smart beta is that it made the implementation of active strategies much more cost-efficient and much easier. "It [also] made it easier for the investors to understand what their exposures are thanks to the rule-based nature and transparency of indices," said Tamir. ""It is simply a natural evolution of active management and this doesn't change the basic challenge of making an investment decision with a degree of uncertainty". Someone still needs to make a decision about which strategy to go with at a given point in time, how much to allocate to it, etc.
Tamir expects more innovation in the smart-beta ETF space in the same way traditional ETFs evolvedfrom equities to bonds.
Founded in 2012, Oasis Investment Solutions is an investment boutique specializing in discretionary management of structured notes portfolios and funds. "We believe structured notes, when properly designed and carefully utilized, could be an excellent means to the company's mission of providing compelling, predictable returns with a clearly defined risk achieve this goal," Tamir said. "However, while there are many players active in the structured products arena, it is still a very distribution-oriented marketwith not too many buy-side professional investors focused on structured products."
Photo credit: Yoram Reshef
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