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Barry Ritholtz

Smart Beta Performance Isn’t Worth the Cost

The higher fees offset sporadically better returns.

If you’re so smart….

If you’re so smart….

George Rinhart/Corbis/Getty Images

Last summer, we looked at fundamental indexing, which is perhaps better known by the catchy marketing phrase “smart beta. The practice uses metrics such as book value, earnings and dividend yield to assemble investment portfolios, rather than the traditional indexing methodology based on market capitalization. The goal is to achieve above-market performance.

Before we go any further, a few qualifiers: I agree that passive investing is less passive than many people believe, since the construction of an index does rely on someone, somewhere making a decision about which stocks belong and which don't. Furthermore, reasonable people can look at the data and amicably disagree.