To Cerulli’s thinking, rules-based, stand-alone strategic beta products aren’t alpha generators. But factor-based investing strategies that employ strategic beta funds could potentially generate alpha, or excess return relative to a benchmark. Often, though, that’s based on proprietary research that most investors aren’t well versed in.
To boost usage of smart beta products, Shapiro suggests that product sponsors should educate end users from an outcome perspective rather than marketing individual products as potential alpha-generating vehicles. He also recommends that advisors should use strategic beta products to align investments with their clients’ goals—i.e., using the size factor to mitigate risk from mega-cap products or a low-volatility ETF for a client with a lower risk tolerance.