What distinguishes smart-beta funds from traditional investment approaches?

They solely rely on market capitalization for stock selection. They combine elements of active and passive management strategies. They prioritize high-risk, high-reward investment opportunities. They exclusively focus on short-term market trends.

How do smart-beta funds differ from traditional funds in their stock weighting methodology?

Smart-beta funds use market capitalization as the sole factor for weighting. Smart-beta funds assign equal weight to all stocks in the portfolio. Smart-beta funds employ multiple factors beyond market capitalization for weighting. Smart-beta funds rely on investor sentiment to determine stock weights.

Which of the following is NOT a factor typically considered in smart-beta investing?

Dividend yield Intrinsic value Brand popularity Momentum

What is the primary objective of considering 'dividend yield' in smart-beta strategies?

To identify stocks with a history of consistent dividend payments. To predict future stock prices based on dividend payouts. To determine the tax implications of dividend income. To assess the environmental impact of companies paying dividends.

Which metric is used to evaluate the 'quality' of a stock in smart-beta investing?

Social media engagement Number of employees Return on equity (ROE) Website traffic

What is the underlying principle behind the 'momentum' factor in smart-beta strategies?

Stocks with recent strong performance are likely to continue outperforming. Stocks with low trading volume offer higher potential returns. Stocks with frequent price fluctuations are more attractive to investors. Stocks with a long history of stability are preferred for long-term growth.

What is a key characteristic of smart-beta funds' stock selection process?

It relies heavily on subjective judgments and intuition. It prioritizes stocks with the highest market capitalization. It employs a transparent model based on quantifiable factors. It favors companies with strong brand recognition over financial performance.

What is a potential drawback of smart-beta strategies, particularly in emerging markets like India?

Limited historical data to validate long-term performance. Excessive reliance on complex algorithms for decision-making. Lack of transparency in the selection and weighting process. High management fees compared to traditional investment funds.