The term “smart beta” has recently entered the lexicon of investment management, but its defining characteristics tend to differ globally. In North America, for example, the term relates to fundamental indexation, or the concept of weighting market indexes by constituent fundamentals as opposed to market capitalization.
On the other hand, UK contexts more closely resemble buy-and-hold portfolio construction focused mainly on corporate bonds. And continental European use of the term commonly refers to low volatility or minimum volatility credit portfolios.
Each is similar in exploring alternative methods to construct fixed income portfolios in response to criticisms of traditional market capitalization. This paper explores the smart beta approach from a North American perspective.