PT  - JOURNAL ARTICLE
AU  - Frederick E. Dopfel
AU  - Ashley Lester
TI  - Optimal Blending of Smart Beta and Multifactor Portfolios
AID  - 10.3905/jpm.2018.44.4.093
DP  - 2018 Mar 31
TA  - The Journal of Portfolio Management
PG  - 93--105
VI  - 44
IP  - 4
4099  - https://pm-research.com/content/44/4/93.short
4100  - https://pm-research.com/content/44/4/93.full
AB  - As smart beta investments in institutional portfolios have grown—along with the additional complexity introduced by multifactor approaches—there is an emerging need for guidance on how to allocate across the ever-increasing array of smart beta products. Smart beta and multifactor investments are exposed to a common subset of elementary smart betas, combined with more idiosyncratic residual exposures. Accounting for the incidental exposures to common factors as well as the idiosyncratic exposures is necessary in designing a well-diversified and efficient portfolio. Accordingly, this article develops a standard framework for investors to blend single-factor and multifactor smart beta within a total portfolio context. A case study demonstrates how the methodology can be applied to attain better portfolios.TOPICS: Analysis of individual factors/risk premia, portfolio construction