SSGA Long Term Smart Beta Forecasts: September 2017
We advocate using Smart Beta investments as a means to potentially boost returns, increase transparency and manage risk, while keeping costs in check. Although many investors have embraced Smart Beta, few have spent time developing a method to forecast their returns. We hope and trust that our clients will find this analysis helpful as they refine their own strategic asset allocations.
Our long-term forecasts are forward-looking estimates of excess return generated through an assessment of current factor valuations and historical return premiums. These excess return expectations can then be added to our total return forecasts of the underlying equity market to formulate total return Smart Beta forecasts. We find that factor valuations are useful in predicting asset class returns over an intermediate horizon, and over the long-term we expect that return premiums will converge to a historical norm.
We focus on the following four factors: Value, Quality, Small Size, and Low Volatility, and in each case our universe is the MSCI World Index.