Factor investing strategies, including smart beta indices, have become mainstream additions to investor portfolios around the world. As this market has matured, the usual marketing platforms available to index providers have fallen behind the needs of time-pressed investors.
Hong Kong-based fintech company SmartAlpha identified this mismatch and launched in July 2016, becoming the first online data platform dedicated to factor, or quantitative, investment strategies. The platform caters to all formats – including strategies traded over-the-counter (OTC) – and is geared towards institutional investors.
The site has received strong interest and non-financial support from institutional investors and strategy providers. The platform’s data providers include banks BNP Paribas and Commerzbank, as well as the exchanges of Hong Kong and Singapore, among a growing number of other investment banks, asset managers, exchanges and index providers.
The platform allows investors to screen and analyse strategies, sift easily through the mountains of available data, and build portfolios.
Factors are underlying characteristics that explain why some assets outperform others. Common factors include low volatility, small size, value and momentum.
By isolating and targeting these and other factors, investors can build portfolios that consistently beat the market on a risk-adjusted basis. A popular way to target factors is through smart beta indices – or indices which do not weight stocks by their size (as usual benchmark indices do).
Risk premia strategies, meanwhile, exploit factors in a similar way to hedge funds, by short-selling stocks and indices and using returns-boosting tools such as leverage and derivatives.
The attractiveness of smart beta and risk premia products is that they are relatively cheap to implement and are rules-based – attributes which have contributed to their exponential growth in recent years.
Since SmartAlpha includes the OTC market for these products, in addition to exchange-traded funds (ETFs) and other formats, its users tend to be large institutional investors while its strategy providers are mainly investment banks and asset managers.
SmartAlpha is a web-based data platform that connects strategy providers with investors in a transparent and secure manner. The sophisticated technology underpinning the platform – which was developed by a full-time team of experienced developers – allows for analyses of strategies and effective portfolio building.
Investors can use SmartAlpha’s tools to screen the wide array of providers and strategies in order to quickly identify the most appropriate strategy for their needs. Searches can be filtered by volatility, asset class and strategy type, among numerous other fund characteristics. Investors can compare data and historical performance metrics; and build, test and tweak portfolios and indices.
Index providers are able to dramatically improve their marketing efforts by reaching a targeted audience of professional investors, ultimately attracting new clients.
The platform bridges the gap between providers and institutional investors that has existed since smart beta and risk premia strategies became so popular. Particularly in the OTC space, investors previously had to approach each provider in search of the ideal strategy. This process is time consuming and inefficient, and also makes the marketing efforts of providers suboptimal.
SmartAlpha was set up by a team of investment bankers who have held senior positions at major banks including Citi, Barclays and BNP Paribas. The company also has a highly-experienced in-house quantitative analyst.
Pent up demand for a dedicated platform servicing this segment of the investment market means SmartAlpha has seen strong appetite from all corners of the institutional investor market in the month since its launch. – BusinessNewsAsia.com