AQR’s Asness on ‘Smart Beta’: ‘Call a Bet a Bet’

Getting deep into the weeds, having Asness say this about a strategy popularized by his buddy and scholarly paper co-author Rob Arnott is kinda funny.*
An excellent catch by Barron's Focus on Funds column:

AQR Capital Management co-founder Cliff Asness has a must-read in the forthcoming Financial Analysts Journal.

“My 10 Pet Peeves” includes a peeve about “smart beta,” which is the buzzword for index ETFs driven by something other than standard market-weighting. These funds are built to own stocks according to juicy or growing dividends, improving earnings and revenues or some other set of factors besides what drives the SPDR S&P 500 ETF (SPY). 

I think people should call a bet a bet. If you own something very different from the market, you’re making a bet and someone else is making the opposite bet. You might believe in your bet because you are being compensated for taking a risk, because the market has behavioral biases, or because your research is just that good. Your bet might be low or high turnover. But, regardless, you aren’t passive.

And here Asness explains the intuition of why “smart beta” is really market exposure plus something else — usually the “something else” is a bet on the superiority of value investing. All which means “smart beta” proponents are effectively trashing themselves when they trash active investment management...MORE

Again, "My Top 10 Peeves" (9 page PDF)

*Here's a nice little paper that über-quant Asness did with Arnott:
Surprise! Higher Dividends= Higher Earnings Growth