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Can Risk Controlled Equities Be Seen as a Smart Beta?

While risk controlled equity betas may not be interchangeable with conventional “smart” betas such approaches do offer the potential to transform a portfolio’s risk/return profile.

According to the Financial Times lexicon, “Smart beta strategies attempt to deliver a better risk and return trade off  than traditional market cap weighted indices.”1 In this paper we take the evaluation criteria used by Ashley Lester and Fred Dopfel in their paper Improving investment outcomes with advanced beta: moving beyond elementary smart beta2 and explore whether risk controlled equities meet the same objective criteria that are often applied to smart beta. Our findings suggest that these risk controlled betas may off er a new and different set of portfolio building blocks relative to existing US equity, smart beta, bond, and cash components within a portfolio.

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