Definition for : Smart beta

Describes a strategy of Stock Market Investment that moves away from holding a percentage of a portfolio, to focusing on particular sub-sets of securities (firms with low P/E ratios, small caps, high Dividend payout rates, low Volatility shares, etc.) which it is hoped will outperform the Market. Investors involved in this family of strategies believe that they are smarter than the average investor. These strategies have resulted in the creation of a smart Beta index, on which securities are not weighted by Market capitalisations, but according to other criteria such as Sales, Dividends, Book Equity, etc.
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