On a recent Friday afternoon, Andrew Ang sits in a drab conference room on the seventh floor of BlackRocks midtown Manhattan headquarters and seems exasperated by the recent debate raging over "smart beta," the investment craze he has helped spread. It's the practice of training computers to screen broad market-cap-based indexes for "factors" like low P/Es and 12-month price momentum, in an effort to improve returns. The strategy, which is sometimes called "strategic beta," has reached investment-fad status among financial firms, with $620 billion devoted to it in more than 600 exchange-traded products. In just the past 24 hours, Vanguard founder Jack Bogle has railed against it, saying smart beta "makes claims that are beyond its ability to fill." Even smart-beta pioneer Rob Arnott, whose firm's investment strategies are used to manage $179 billion, is now worrying that smart beta could go "horribly wrong."
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