Indexing is growing at a rapid pace globally, and it is thought that many developed market participants are selecting index-based funds as their default investment option these days. With data moving more freely and frequently in the world, the range of rules-based and transparent indices being developed has increased rapidly, focusing not only on market-cap-weighted indices, but also on ESG, smart beta, multi-factor, and multi-asset solutions.
Alternatively weighted—or smart beta—strategies are among the fastest-growing and hottest investment topics. They range from the basic concepts of equal-weighted indices to dividend-yield-weighted strategies and the more exciting multi-factor indices we are seeing today.
Smart beta strategies are mainly designed to provide access to a wide array of return-enhancing risk premia (or risk factors). These factors are typically grouped under volatility, momentum, quality, growth, value, dividend yield, and size. Various indices have been launched based on global, developed, and emerging markets, but the question of whether smart beta can work in Africa is coming up more frequently.