The difference between true active management and strategic beta is that strategic beta is systematic and he thinks that gives it an upper hand.
“For me, personally, I like the benefit of a system,” Gray said. “It pulls the human element out. It helps the buyer know what they’re buying. … If I know the process and the model, I have confidence in what they’re buying.”
Another reason to look closely at these funds is to make sure that their systems will be different from, say, the Standard & Poor’s 500. New factor investing funds are starting to include more than one factor—blending the value and momentum factors, for instance.
“If you do factor investing, don’t accidently buy all the factors and recreate the S&P,” Gray said. “Know what you’re buying.”
O’Shaughnessy agreed that the concentration is important when you’re taking an integrated approach.
“If you want to focus on multiple things, make sure the net portfolio is still very different from the market. That’s the biggest pitfall you want to avoid,” he said.