Index Investing: From Theory to Practice · Dr MAI Huu Minh, TRAN Phan Bao Ngoc & HUYNH Nguyen Quoc BuuChapter 34 of 37 · Module 7: Latest index trends and innovations
CHAPTER 34
Factor Weighting and Smart Indexes
Beyond market cap: fundamental, risk-based, factor-tilted and multi-factor indexes — the new generation
Opening question
“My Vietnam fund holds the same five blue chips as my friend's 'smart' fund. Hers fell less last year and charges more. Is the clever weighting worth paying for, or is it just a back-test with a marketing budget?”
In this chapter
- What is still new about "smart beta"
- A map of weighting approaches: heuristic, risk-based, score-based and optimised
- Fundamental weighting and its rebalancing effect
- Risk contributions and equal-risk-contribution weights, solved for a five-stock Vietnamese basket
- Z-scores, tilts and the mix-versus-integrate debate
- Dynamic, AI-scored, ESG-combined and fixed-income factor indexes
- The costs of being smart, and a checklist for judging any smart index
- VNDiamond, VNFinLead, the new HOSE strategy indexes and two NXW designs
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This chapter is in the full book
Chapter 1 is free to read online. The full text of chapter 34 — with its tables, figures, worked examples and practice lab — is available in the complete edition of Index Investing: From Theory to Practice (Volume 1, NXW Investment Library).
Read Chapter 1 freeGet the full book — contact@nxw.vnSections of this chapter
34.1 Why look beyond cap weighting?
34.2 A map of weighting approaches
34.3 Fundamental weighting and the rebalancing effect
34.4 Risk-based weighting: from inverse volatility to equal risk contribution
34.5 Factor scores, tilts and multi-factor design
34.6 The new generation
34.7 The costs of being smart
34.8 How to evaluate a smart index
34.9 Asia and Vietnam