Smart beta’s main objective is to obtain alpha, lower risk or increases diversification at a cost lower than straight index investing. Smart beta indices is a combination of the efficient market hypothesis and value investing. The approach applies to popular asset classes, such as equities, fixed income, commodities, and multi-asset classes.
It emphasizes capturing investment factors or market inefficiencies in a rule based transparent way. Alternative weighting schemes may be used such as volatility, liquidity, quality, value, size and momentum.
Dividend Indices
Dividend investing is one of the best ways to accumulate wealth over the long term. When a company pays regular dividends to generate income and cash flows to share profits with investors.
Select Dividend indices measure the best-performing stocks based on their dividend yield performance. Companies are selected and weighted solely based on historical dividend payments.
The indices may contain any number of stocks. The stocks are chosen based on factors like dividend per share growth rate, dividend pay-out percentage rate and average daily trading volume. Components are then weighted according to the dividend yield.
Maximum Dividend Indices aim to maximise the dividend yield of the index portfolio on a short term basis and are available for global and regional markets. They represent the companies with the highest dividend yield, based on the 3-month dividend forecast. Components are weighted according to their expected liquidity-adjusted dividend yield.
Index Providers
Index providers calculate and distribute stock and other asset classes. One of the main objectives of the index provider is to classify and define markets because their indices represent a market and provide a benchmark of performance for that market or sector.
The group comprises of diverse entities e.g. - stock exchanges, financial institution, analytical and research companies as well as financial data providers. Their role increases along with systematically growing importance of index investment instruments. The decision made by them affects the allocation of capital, mainly on a microeconomic and macroeconomic scale.
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