An evaluation of smart beta and other rules-based active strategies

September 4, 2015


Rules-based alternatives to market-capitalization-weighted indexes, be they called alternative indexing, indexing on fundamentals, or smart beta, allure investors seeking to outperform the broad market with the promise of excess returns. Despite the increased interest, though, no consensus definition for smart beta exists. In this Vanguard research paper—An evaluation of smart beta and other rules-based active strategies—authors Chris Philips, Don Bennyhoff, Fran Kinniry, Todd Schlanger, and Paul Chin define and examine smart-beta strategies. They show how the "excess return" of such strategies can be partly (and in some cases largely) explained by time-varying exposures to various risk factors, such as size and style.

Use this paper to:

  • Analyze the past performance of smart-beta strategies versus the broad market.
  • Understand how time-varying exposures to risk factors, not divorcing a security's index weighting from its price, drive returns in smart-beta strategies.
  • Learn about viable alternatives to nonmarket-cap-weighted index strategies for trying to outperform the broad market.
Additional materials


  • All investments are subject to risk, including possible loss of principal.

Our insights straight
to your inbox

Our insights straight to your inbox

Receive our latest Advisor's Digest
and commentary sent the
first business
morning every week.

A weekly digest of our latest research and commentary. Topics include the economy and markets, portfolio strategy, ETFs, and practice management.

Fund openings/closings, fund manager changes, dividend distributions, webinars, and other events you might want to know about.

Already registered? Log on to
manage your
email subscriptions.