While active managers have tended to focus on the exploitation of systematic and specific risk in order to beat the market, as proxied by global market capitalisation weighted indices, less attention has been paid to the constitution of the market that they are trying to beat.
A more optimal strategic beta approach involves targeting a risk/reward aligned strategy to global equities.
This requires strong risk budgeting and a deep understanding of the key factors that drive equity markets in order to generate attractive risk-adjusted return.
This approach constitutes a clever combination, offering insights derived from active management delivered in a passive form.
Piera Elisa Grassi is research driven process equities specialist at JPMorgan Asset Management
