Boston QWAFAFEW Meeting: Tuesday, 20 Jan 2015 – Smart Portfolios

Next Boston QWAFAFEW Meeting: Tuesday, 20 Jan 2015


Time: 6:15 PM sharpe
3rd Floor of the Tennis & Racquet Club, 939 Boylston Street



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A QWAFAFEW discussion led by:


Jason MacQueen





Smart Beta has become the latest fashion to conquer the investment community. There are now numerous indices and ETFs purporting to offer exposure to one or more investment styles, both in the USA and elsewhere.  Its cheerleaders claim that Smart Beta investment products offer the alpha promise of active managers, without the corresponding drag on performance from fees.


Large pension funds or endowments with several active managers will almost invariably find that their diversified equity portfolio, in aggregate, consists of a bet on the equity market plus a relatively small number of style factor bets, so that their fund’s performance will be that of the market, overlaid with various style tilts, and minus the managers’ fees.  Put this way, it is easy to see the appeal of Smart Beta products.


However, there are also critics of both the underlying concept and its many implementations. From a quant perspective, these are simply factor portfolios which offer significant exposure to the desired style factor, but the way in which many Smart Beta products are designed suggest that the style tilt will only have a modest effect on their performance.  To suppose that a market-capitalisation-weighted portfolio of US stocks with high Book-to-Price ratios will provide a meaningful exposure to the Value premium is naïve at best, and weighting by their “relative style attractiveness” is little better. Having a simple story to sell Smart Beta products comes at the price of leaving a lot of the Style premium on the table.


This talk will argue that the real added value to be gained from creating Smart Beta portfolios lies in the methodology used to create the Smart Portfolio, and that this, in turn, is the end result of taking care at each step of the portfolio construction process.  The talk will cover several US Style strategies, each based on standard Style factors.




In 1980 Jason MacQueen founded QUANTEC, which was the first firm to develop risk models for equity markets outside the USA, and which ultimately built risk models for all of the developed and most of the emerging markets.  In 1984 QUANTEC launched the first global asset allocation model, including currency hedging overlays and the first use of reverse optimisation for efficient portfolio rebalancing.


Jason also pioneered the development and use of multi-factor stock selection models in the U.S.A. and Japan, and the investment track records of his long term collaborators are exceptional.  In the early 1990s QUANTEC developed the first truly global risk model and a global stock selection model, both incorporating global common factors.


In the late 1990s Jason and his colleagues developed a statistical risk model-based technique for the American Stock Exchange to enable them to offer Exchange Traded Funds (ETFs) on Actively-managed Mutual Funds without knowing the underlying holdings. This technology can also be used by enable pension funds and others to manage their overall portfolio risks without having full transparency from their external managers.


QUANTEC was sold to Thomson Financial in February 2001, and after consulting to them for two years, he co-founded R-Squared Risk Management in 2003 to develop Customised Hybrid Risk Models for institutional investors to manage their portfolio risks more efficiently. R-Squared has also developed a unique set of XRD equity risk models covering different geographies. In addition, the RSQRM XRD models can be used to estimate the sensitivity of portfolios to a wide range of macro-economic variables and commodity prices.  In December 2014, R-Squared Risk Management was acquired by Northfield Information Systems.


Since founding QUANTEC in 1980 Jason has developed the theoretical framework of Markowitz and his successors into a practical set of tools for institutional fund managers.  By his passionate pleas for a disciplined and logically coherent approach to portfolio management, he has acquired an international reputation as speaker, consultant and iconoclast.  He was educated at Oxford and London Universities, where he read Mathematics and Theoretical Physics.


He was the founder and first Chairman of the London Quant Group, a not-for-profit organisation established in 2007 to arrange Seminars on the practical application of quantitative investment technology, and is also a Director of the Society of Quantitative Analysts in New York.


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Please RSVP for all meetings you plan to attend:

Guests who do not RSVP may have to wait to enter the meeting, due to space constraints (capacity=100, BFD).


Guest fees ($30) can be paid through EMA (check or PayPal, bring receipt) or bitcoin (at address above). We still allow walk-ins (space permitting). The $30 guest fee can be paid by bitcoin, cash or check at the door, no credit cards at the meeting.


As always, if you have names or discussion topics, please forward them to any member of the Steerage Committee


Questions, comments:



Steerage Committee

Max Arai

Hugh Crowther (Treasurer)

Dan diBartolomeo

Steve Gaudette

Mark Kritzman

John Minahan

Donna Cool Murphy (Dinners)

Larry Pohlman

Dan Potter

Dan Rie

Evan Schulman

Michael Wilcox


The members of the Steerage Committee are responsible for coordinating the program content.

Program suggestions from members are always welcome..


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