What is so ‘smart’ about smart beta funds?

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Factor investing (also called smart beta investing) is gaining traction in India. Having best of both worlds, factor investment lies somewhere between the active and passive investment. It keeps human emotions at bay and also follows a rule-based approach. Explaining more about it in an interview with Money9, Anish Teli, Managing Partner & Principal Officer at QED Capital, PMS lists three kinds of factor strategies – value, quality and momentum.

The first one focuses on stocks with lower valuations. The second is about consistent profitability, while the third one takes into account the recent performance to gauge future performance.

Highlighting key points that a retail investor must know about factor investing, Teli says, that such strategies don’t work all the time. There are different market cycles in which a particular strategy outperforms or underperforms. Momentum, since it focuses on short-term performance may do well in all cycles. “Look for factor funds with negative correlation. For example, value and momentum strategies are negatively co-related,” Teli says.

Watch the full conversation on Money9