While many institutions and advisors have put money into smart-beta vehicles, there are as many asset managers and industry observers who are skeptical, to put it mildly, of smart-beta proponents' claims.
Among them is John Bogle, who in a video interview with Morningstar's Christine Benz last year came out swinging against smart beta, calling it a "marketing gimmick" that will only benefit the denizens of Wall Street. When asked what he thought about smart beta, Bogle responded by saying, "If I had to give you one word for it, Christine, it would be silly. We're trying to put a fancy name on something. I think everybody would think they want 'smart beta,' whatever that is, but there is no ultimate answer to that. There is no smart beta for everybody; let's understand that very clearly. Beta is 100, and if smart beta gives you 105, dumb beta, for the want of a better expression, is going to give you 95, but in most cases at less cost."
Bogle added, "'Smart beta' is like saying 'smart manager.' Everybody wants a smart manager, but the average manager on average is average. So, it's a marketing gimmick, I would call it."
In a Jan. 4 article in Barron's, staff writer Reshma Karpadia neatly summed up the naysayers' nits. "The trouble is that there are too many different strategies in the mix to warrant a category label that implies cohesion—especially since many strategies are still unproven." She then cited an advisor favorite among asset management firms—Dimensional Fund Advisors—as "the grandfather of smart-beta strategies," but qualifies that moniker by saying DFA's fund are "based on decades of exhaustive research."
Skeptics come from both the active and passive sides of the investing debate, including Cliff Asness of AQR Capital Management, James Montier of fund manager GMO, Joel Dickson of Vanguard and Rick Ferri of Portfolio Solutions Inc., who in a gathering of the John Bogle fans called "Bogleheads" last year reiterated Bogle's assessment of smart beta as "silly," according to a Wall Street Journal article by Karen Damato and Ari Weinberg. "Beta is just beta," Damato and Weinberg said he told the group.
