Strategic beta is probably one of the most often-used and misunderstood terms in the financial services industry, Marc Zeitoun, head of Strategic Beta at Columbia Threadneedle Investments, said at the 2020 Inside ETFs conference.
Zeitoun said advisors and investors pick investments along a continuum with beta—benchmarks, the S&P, etc.—on one side and alpha—hedge funds and direct investments—on the other.
In the middle are active mutual funds, and somewhere to the left of those are strategic beta solutions, he said.
"Strategic beta really is the intersection of beta influence and alpha insight," Zeitoun said.
He said advisors should use strategic beta in building client portfolios to complement an existing benchmarking strategy.
"Another way strategic beta can be used is for advisors to lower the overall price of a portfolio," Zeitoun said. "Because they're going to carve out some active solution—which comes at a premium price—and allocate to that passive solution—strategic beta—which will have the effect of lowering the overall cost."
