While the concept of smart beta reaches back decades, its relatively recent rise and accelerated adoption is rooted in the aftermath of the financial crisis six years ago. In a prolonged near zero interest rate environment, investors are still in a predicament. Bond yields are tepid, and yield- seekers are moving steadily toward riskier credits. The robust equities market has ramped up disproportionately to economic growth. Pension funds, endowments, insurance companies and other institutions are seeking new ways to drive returns, but, still smarting, they want them on a risk-adjusted basis. "We're in a world of scarcity of returns, and it's difficult to beat the benchmark by sector and country allocations alone," says Francois Millet, ETF and indexing product line manager at Lyxor Asset Management. "Smart beta strategies are based on rewarded risk factors and provide higher and more stable returns." Smart beta has stepped into the spotlight.
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