Active Allocation To Smart Factor Indices

This paper provides a formal empirical analysis of the benefits of strategic and tactical allocation to multiple equity smart factor indices in a context where relative risk with respect to the cap-weighted indices needs to be explicitly controlled for. The focus of this paper is to provide a quantitative assessment of the benefits expected from the three sources of added-value (which come from time-varying strategic, time-varying tactical or time-varying core-satellite allocation decisions) in the design of equity benchmarks with superior risk and return characteristics.