In recent years, the term "smart beta" has become a buzzword in the world of indices, but, in fact, it is an investment strategy that has emerged as early as the 1970s when professional institutional entities used alternatives to the traditional market cap indices. But so far, such an investment strategy has not been branded as smart beta. Now that the term has become widely used, firm SmartBeta wishes to give you a glimpse into what we believe is an interesting investment opportunity for you to explore.


Smart beta is an innovative investment approach that combines active and passive management. Smart beta are smart indices that are not based on market cap, like the traditional indices, but rather on momentum, value, low volatility, etc. These indices represent a significant development in investment management and another step in the index revolution.


Why do smart beta indices ignore market caps?

In market cap indices, such as the Tel Aviv-125 index, each share is weighted according to its size. This means that investing in traditional indices results in high exposure to the large stocks, which in many cases are already fully priced if not over priced. For example, the 6 largest shares on the TA-125 index constitute around 37% of the weight of the index’s total shares. Smart beta indices select stocks based on criteria other than market cap, such as stock momentum or volatility and risk level, thus attempting to create an advantage over the traditional indices.


Is this an active or passive investment?

Smart beta indices offer an alternative to traditional market cap indices and constitute a combination of the two investment approaches - the active and the passive ones. On the one hand, the composition of the indices requires active investment management, i.e. - to consider criteria such as dividend yield, historic yields, standard deviation, multiples, etc. On the other hand, they are  indices for all intents and purposes, tracking assets and having familiar characteristics such as transparency, low cost and passive management. In other words, the investment manager cannot intervene in the index’s composition.


Does it actually work?

Smart beta indices* are based on numerous academic studies that have proven there is a high correlation between a robust stock price momentum, high dividend yield, low volatility, etc. and risk mitigation and higher return on investment.


Who invests in smart beta?

The smart beta revolution is already underway worldwide, and institutional investors have been investing in them for several years. In 2016, according to BlackRock, there was a 50% increase in smart beta investments, which have reached $45 billion.


SmartBeta is leading Israel’s smart beta revolution*


For the first time in the Israeli capital market, SmartBeta, owned by Altshuler Shaham, AlphaBeta - under the control of Kobi Shemer and Lior Kagan, enable Israeli investors to enjoy all the advantages of smart beta tracking funds. We believe this to be the optimal combination between active investment - in which Altshuler Shaham has specialized for many years - and the advantages of passive investment: maximum transparency, daily liquidity, low cost, and reliance on numerous years of academic studies. This is done by using indices that have been prepared and developed by AlphaBeta in recent years in an attempt to achieve potentially excess returns over the traditional market cap indices, with relatively low volatility **.

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*A smart beta index is an index based on the Smart Beta strategy, by which securities are not selected according to market cap (as is the case with traditional indices, published by various index editors in Israel and abroad) but rather on a different methodology of selecting securities (based on factors such as price momentum and low volatility), with the aim of achieving superior results (in terms of return, volatility and other criteria) in relation to relevant market cap indices, at essentially similar market conditions. ** The foregoing does not constitute a commitment to achieve excess returns (^) Altshuler-Shaham Mutual Fund Management Ltd. • The foregoing does not constitute an offer to purchase units in the funds • The purchase of units in the funds is based on a main prospectus, an annual report and the effective immediate reports. • The foregoing does not constitute a substitute for investment marketing which takes into account each investor's individual needs.  • Past ratings and/or returns do not guarantee similar rating and/or returns in the future• Past ratings and/or returns do not guarantee similar rating and/or returns in the future• The fund’s name includes the fund's exposure profile to stocks and foreign currency, as stated in Regulation 1 of the Joint Investments Trust Regulations (Classification of. Funds for the Purpose of Publication), 5768-2007. See Exposure Legend E&OE