Indexing 2.0: Smart Beta

On average, monkeys throwing darts at the stock listings could outperform most investment managers. Actually, Barron's notes, they can do even better. They can beat the S&P 500.

Reason: the monkeys are assumed to invest an equal number of dollars in each stock they hit upon, regardless of market capitalization. Equal weighting seems to produce better returns. 

[T]he S&P 500 Equal Weight index has returned 9.1% a year over the past 15 years, beating the S&P 500 cap-weighted index by a whopping 4.6 percentage points a year.

Inspired by the monkeys, so-called smart beta investing has produced an expanding list of quasi-index funds not weighted by market capitalization. The more sophisticated models sound a lot like automated stock picking.

Does smart beta investing have legs? Whether passing fad or significant trend, Paul Sullivan's renaming seems appropriate:

[A] better, if less marketable way to think about smart beta might be to call it “lazy alpha”….