Is Alpha Minus Beta A Simple Rule for A Smart Beta Strategy?

Abstract

Thematic investment portfolios have been of interest to portfolio managers. They can take on a variety of names including Smart Beta. One such model was suggested by Minami and Wakatsaki. They suggested an investment rule of Alpha Minus Beta as a good method to build a factor tilt portfolio which is efficient in an absolute risk-return space. This paper addresses their model by empirically examining market data. The S&P 1500 was segmented into quintiles based on Alpha Minus Beta for a fifteen year period. The suggested model had value as the Coefficient of Variation was favorable compared to the index.