The california public Employees' Retirement System became a leading institutional investor in smart beta by following a philosophy that has evolved over the past decade. The biggest U.S. public pension fund defines the smart beta exposure it wants to add to its equity portfolio and finds the best way to get there at the lowest cost. That could mean sourcing the strategy and the product externally, or creating one or both in-house. Smart beta rejects index or portfolio weighting by market capitalization in favor of a rules-based approach designed to outperform passive investments in traditional market-cap indexes. Such strategies are typically viewed as passive, but CalPERS-which prefers the term "alternative beta" - treats them as active investments.
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