Which investment strategy implements a rules-based portfolio weighting scheme?

Which investment strategy implements a rules-based portfolio weighting scheme?

• A. Smart Beta
• B. Value Investing
• C. Growth Investing
• D. Strategic Asset Allocation

Answer: (A)

The investment strategy that implements a rules-based portfolio weighting scheme is Smart Beta. This strategy seeks to enhance returns and reduce risk by using alternative methods for portfolio construction instead of traditional market capitalization weighting. Smart Beta strategies follow specific rules related to various factors, such as value, volatility, or momentum, to determine how to allocate investments among the securities in a portfolio. This systematic approach contrasts with more discretionary strategies, which might rely more heavily on subjective judgment. In Smart Beta, the "rules" can define how much weight is given to each stock based on specific criteria, allowing for a more targeted investment strategy that aims to capture certain financial factors believed to deliver excess returns over time. Thus, the application of a structured and rules-based methodology is what sets Smart Beta apart from other strategies. The other investment strategies, while effective in their own contexts, do not typically rely on a systematic rules-based approach for weighting portfolios. Value and growth investing often involve subjective assessments of individual securities, while strategic asset allocation focuses more on setting target allocations to various asset classes based on an investor's risk tolerance and investment goals without necessarily applying a rules-based weighting to individual securities.

The investment strategy that implements a rules-based portfolio weighting scheme is Smart Beta. This strategy seeks to enhance returns and reduce risk by using alternative methods for portfolio construction instead of traditional market capitalization weighting. Smart Beta strategies follow specific rules related to various factors, such as value, volatility, or momentum, to determine how to allocate investments among the securities in a portfolio. This systematic approach contrasts with more discretionary strategies, which might rely more heavily on subjective judgment.

In Smart Beta, the "rules" can define how much weight is given to each stock based on specific criteria, allowing for a more targeted investment strategy that aims to capture certain financial factors believed to deliver excess returns over time. Thus, the application of a structured and rules-based methodology is what sets Smart Beta apart from other strategies.

The other investment strategies, while effective in their own contexts, do not typically rely on a systematic rules-based approach for weighting portfolios. Value and growth investing often involve subjective assessments of individual securities, while strategic asset allocation focuses more on setting target allocations to various asset classes based on an investor's risk tolerance and investment goals without necessarily applying a rules-based weighting to individual securities.