New York (HedgeCo.Net) In a recent white paper produced by Chris Arthur, Senior Global Relationship Manager for Eaton Vance, Mr. Arthur suggested that financial advisors should use a mix of active and passive management strategies along with a smart beta approach in guiding their clients. He also offered this definition of smart beta:

“We define it as a disciplined, rules-based strategy that focuses on adding value via portfolio construction techniques, with an emphasis on dynamic rebalancing and enhanced risk management.”

The paper isolated certain market circumstances where active management should perform well and the factors included:
• The level of interest rates.
• Market direction.
• Volatility levels, as measured by the Chicago Board Options Exchange Market Volatility Index (VIX).
• A breakdown of returns between market, sector-industry and company.
• The correlation among securities over 63-, 126- and 252-day periods.
• The cross-sectional volatility of the market.

The information on the VIX was particularly interesting as the paper stated that “when the three-year average of the VIX is either above 21 or below 16, active management has historically tended to outperform passive management.”