How Misunderstanding Factor Models Set Unreasonable Expectations for Smart Beta

by Bruce I. Jacobs, Kenneth N. Levy, and Sangwoo Lee, Journal of Portfolio Management, January 2025: The poor performance of some smart beta strategies in recent years is due to shortcomings of standard factor pricing models, from which the strategies draw their well-known factors... Inevitably, these factors include some that may fall out of favor, sometimes for extended periods, as market conditions change. Smart beta strategies also are limited by the standard factor models’ narrow focus on a handful of generic factors and a failure to take into account correlations between factors. Overcoming these limitations requires further steps toward a fully active, dynamic, multifactor approach, aka “smart alpha.”

Jacobs Levy Selected in Pensions & Investments’ Best Places to Work in 2024

by Caryl Anne Francia, Pensions & Investments, December 9, 2024: Jacobs Levy Equity Management has been recognized as a distinguished winner in Pensions & Investments’ Best Places to Work in Money Management for 2024, among firms... with 50-99 employees. The award is primarily based on an employee survey. The firm’s collegial and collaborative culture, support from all levels in the company, emphasis on innovative work, and a focus on achieving the best for clients are a few of the reasons why Jacobs Levy was among this year’s winners.

Bruce I. Jacobs’s Keynote Presentation: Building on Finance Theory to Forge the Future of Investment Practice

Journal of Portfolio Management (JPM) 50th Anniversary Symposium, Union League Club, New York, November 14, 2024: Bruce Jacobs’s keynote address to more than 150 investment professionals to celebrate JPM’s 50th Anniversary... discussed recent advancements and refinements in finance theory and application and how they are transforming the landscape of investment strategies. These new approaches include smart alpha, an active, dynamic, multifactor approach that accounts for a wide range of proprietary factors and changing market conditions; an extension of modern portfolio theory that accounts for investor aversion to leverage-related risks; enhanced active equity long-short extension strategies that can improve portfolio efficiency; and asynchronous, discrete-time dynamic simulations of financial markets to better reflect market realities. The keynote presentation is based on two articles published by JPM, “Building on Finance Theory to Forge the Future of Investment Practice,” by Jacobs and Ken Levy, and “How Misunderstanding Factor Models Set Unreasonable Expectations for Smart Beta,” by Jacobs, Levy, and Sangwoo Lee.