Decoding smart beta investing strategy: What is it and who should go for it?

Chintan Haria, the Fund Manager at ICICI Prudential AMC on Thursday, November 2, shed light on smart beta investing strategy that has been gaining significant traction in the financial markets. The availability of more than 40 schemes indicates a clear and growing interest among both investors and fund managers in smart beta.

Haria, in his discussion, emphasised the essence of smart beta as a concept that holds elements of both active and passive investing. He explained that much like an active fund manager selects a universe of stocks and crafts a portfolio based on specific factors, smart beta strategies also follow a similar pattern.

One of the notable advantages of smart beta investing is the flexibility it offers to investors. Haria explained that investors can tailor their portfolios to align with their preferences, choosing factors like value, growth, momentum, or low volatility, depending on their investment goals and risk tolerance.

"Which factor you choose will determine where you make money and how you generate alpha from the smart beta," Haria emphasised.

"But yes, different market cycles and different macros would mean different factors do well," he told CNBC-TV18.

Smart beta funds are gaining popularity, primarily because they provide low-cost, curated solutions for portfolio allocation.

In the context of India, two smart beta strategies have garnered substantial attention - low volatility and momentum. These strategies have attracted both assets under management (AUM) and investor interest.

Haria pointed out the performance track record of these strategies, noting that momentum has performed well in recent years, while low volatility enjoyed a strong run prior to that. Investors are drawn to these strategies for their potential to deliver attractive risk-adjusted returns.