Browsing by Author "Viljoen, Jacobus"

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    The application and testing of smart beta strategies in the South African market
    (Stellenbosch : Stellenbosch University, 2018-03) Viljoen, Jacobus; Conradie, W. J.; Stellenbosch University. Faculty of Economic and Management Sciences. Dept. of Statistics and Actuarial Science.
    ENGLISH SUMMARY: Smart Beta portfolios have recently prompted great interest both from academic researchers and market practitioners. Investors are attracted by the performances produced by these portfolios compared to the traditional market capitalisation weighted indices. The question that this thesis attempts to answer is: Do smart beta portfolios outperform the traditional cap-weighted indices in the South African market? According to BlackRock’s smart beta guide (Ang, 2015), the smart beta strategies aim to capture stock return drivers through rules-based, transparent strategies. They are generally long only and usually implemented within an asset class, in the case of this assignment, only equity. Smart beta is thus an investment strategy that positions itself between active and passive investing. Smart beta strategies are active in the sense that they invest in factors that drive return to improve risk-adjusted returns. In the same way, these strategies are closely related to passive strategies in that they are transparent, systematic and rules based. In this assignent five different fundamental factor portfolios (value, quality, momentum, volatility and a combination of the four, called multi-factor) were created based on the smart beta methodology. The factors that were used are well researched in the market and have been proven to provide investors with excess return over the market. Firstly, stock selection was done using two different techniques (time series comparison and cross-sectional comparison). The best stocks were selected based on their fundamental factor characteristics. Secondly, two different smart beta weighting strategies as well as a market-cap weighting strategy were applied to the selected stocks in order to create the various portfolios. The risk and return characteristics of the created portfolios were compared to those of the two benchmarks (JSE All Share Index and the JSE Shareholder Weighted All Share Index). The smart beta portfolios created in this thesis outperformed the benchmarks as well as the market-cap weighted portfolios. Lastly, the estimation of the macroeconomic exposure of the smart beta portfolios using a methodology outlined in a Citi Research paper is presented (Montagu, Krause, Burgess, Jalan, Murray, Chew and Yusuf., 2015).