| Historically, institutional investors have had to choose between two alternatives, alpha or beta (active or passive). Active managers were compensated for performance and earned fees for “generating” alpha, or excess returns relative to a benchmark. On the other side of the spectrum, lie passive investments – index investments that were simple to understand and - in most cases - transparent.
Fast forward to more recently, and a growing trend among a number of small quantitative shops that have developed factors in ranking stocks has emerged. This in turn led to the indexation of stocks using factors. It goes by many names: smart beta, advanced beta and even alternative beta. The systematic, rules-based approach of using factors in an index has attracted large public funds like sovereign wealth funds and pensions, due to a lower fee structure and greater transparency in holdings..............................................Full Article: Source
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