The Blurring of Lines Between Active & Passive Investing

The video discusses the differences between traditional and smart beta funds, focusing on investment processes, costs, and active risk. It highlights the value of active management in less liquid markets and systematic approaches in efficient markets. The design of smart beta ETFs involves selecting factors like size, value, and momentum, with a dynamic macro overlay. Criticisms of factor overuse are addressed, emphasizing the importance of low correlation among factors. The video also explores market saturation and the potential of dynamic multifactor strategies.

What are the main differences between traditional and smart beta approaches?

• Geographical location, currency, and regulation

• Market size, liquidity, and volatility

• Investment process, cost, and active risk

• Technology, innovation, and sustainability

In which market conditions is active management considered more valuable?

• During periods of high inflation

• Highly liquid and efficient markets

• Less liquid and less efficient markets

• In stable economic environments

What is a key challenge in designing a smart beta ETF?

• Selecting the right geographical regions

• Timing factors accurately

• Choosing the correct currency

• Predicting future market trends

How many main equity factors are typically considered in a multi-factor ETF?

• Three

• Five

• Ten

• Fifteen

What is a common criticism of multi-factor ETFs?

• They are too complex to understand

• They are too expensive

• They lack diversification

• They resemble closet indexing

What is an important consideration when designing a diversified portfolio of factors?

• Maximizing the number of factors

• Ensuring factors are lowly or negatively correlated

• Ensuring factors are highly correlated

• Minimizing the number of factors

What trend has been observed in the launch of multi-factor ETFs compared to single-factor ETFs?

• Both have seen equal growth

• Multi-factor ETFs have outnumbered single-factor launches

• Single-factor ETFs are more popular

• Single-factor ETFs are declining