There is now an abundance of risk premia and smart beta products available, covering a wide range of asset classes and strategy types.
The asset classes which feature most prominently are equities and commodities, since banks have tended to invest slightly less resources into credit and fixed income products. This is partly because usual fixed income instruments, like bonds, are difficult to include in a rules-based index, unlike listed stocks or futures contracts.
For that reason, some of the most well-known fixed income indices are used as non-investable benchmarks. But given the current appetite for passive investments, fixed income strategies are catching up very quickly, especially in the smart beta space. Investors have a growing number of options to choose from, and assets under management are flourishing. Some strategies combine different assets classes, such as cross-asset momentum strategies, which, in a way, can often be seen as CTAs. Some of these have delivered solid performances over the past few years.
There is currently no “standard” definition of strategy type, with categories being different from one bank to another – which can make comparisons somewhat difficult. Providers usually use five or six different categories to define their strategies. More often than not, carry, value and momentum strategies are included, while the others are often made up of arbitrage, size, liquidity, or volatility strategies, among others.
