Portfolio manager Justin Sibears was interviewed by Global X on the topic of Smart Beta.

A quick excerpt:

Some say smart beta is a gimmick and you cannot improve on a cap-weighted index. Are there inherent flaws in cap-weighted indexes or areas for improvement that can be addressed through smart beta strategies?

I wouldn’t say that there are flaws with cap-weighted indices.  In fact, most investors could do far worse than parking their money in a low cost, cap-weighted index fund. 

With that being said, we think that it is important to understand that by holding a cap-weighted index fund, investors are implicitly endorsing the market’s valuation of each security.  If the market decides that the tech sector should be valued by clicks or page views instead of more traditional fundamentals, the cap-weighted investor goes along for the ride.  The dot-com bubble exemplifies the pain that this type of approach can cause.

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Corey is co-founder and Chief Investment Officer of Newfound Research, a quantitative asset manager offering a suite of separately managed accounts and mutual funds. At Newfound, Corey is responsible for portfolio management, investment research, strategy development, and communication of the firm's views to clients. Prior to offering asset management services, Newfound licensed research from the quantitative investment models developed by Corey. At peak, this research helped steer the tactical allocation decisions for upwards of $10bn. Corey holds a Master of Science in Computational Finance from Carnegie Mellon University and a Bachelor of Science in Computer Science, cum laude, from Cornell University. You can connect with Corey on LinkedIn or Twitter. Or schedule a time to connect.