The proliferation of quantitative strategies indicates investors increasingly recognize the benefits of using data and technology and applying a scientific investment approach to generate returns. Advancement of this kind led to the emergence of a "new" beta category and means the investment universe no longer divides neatly into funds that seek alpha or beta. Similarly, the nomenclature used to define the strategies has become indefinite. Unfortunately, the blurring of strategies and terms has led to confusion and frequent conflation of two distinct strategies: smart beta and alternative beta.
It is critically important the investment community better understands the difference between smart beta and alternative beta because they aim to deliver markedly distinctive risk-and-return profiles and, accordingly, serve different purposes in an investment portfolio.
This article clarifies the two categories with respect to investment objectives, implementation and fees. The comparative analysis focuses on equity-based strategies, but the arguments presented are asset class agnostic. Ultimately, this comparison intends to help investors make well-informed investment decisions.