Is ‘Smart’ Beta Just Expensive Beta? | Betterment

Staff (Betterment); Is ‘Smart’ Beta Just Expensive Beta?; In Their Blog; 2015-06-15.
Teaser Are ‘smart’ beta funds good for investors? So far, the answer is no.

tl;dr → Betteridge’s Law. No.

From Two Sides Now

Is ‘Smart’ Beta Just Expensive Beta?
Yes.
Are ‘smart’ beta funds good for investors?
No.

Index Funds May Work a Little Too Well | Bloomberg View

Index Funds May Work a Little Too Well; ; In Bloomberg View; 2015-07-22.

Original Sources

Einer Elhauge (Harvard Law School); Horizontal Shareholding; Harvard Law Review, Vol. 109, No. 5, 2016-10-15; 47 pages; ssrn:2632024.

Abstract

Horizontal shareholdings exist when a common set of investors own significant shares in corporations that are horizontal competitors in a product market. Economic models show that substantial horizontal shareholdings are likely to anticompetitively raise prices when the owned businesses compete in a concentrated market. Recent empirical work not only confirms the prediction of these models, but also reveals that such horizontal shareholdings are omnipresent in our economy. I show that such horizontal shareholdings can help explain fundamental economic puzzles, including why corporate executives are rewarded for industry performance rather than just individual corporate performance, why corporations have not used recent high profits to expand output and employment, and why economic inequality has risen in recent decades. I also show that stock acquisitions that create anticompetitive horizontal shareholdings are illegal under current antitrust law, and I recommend antitrust enforcement actions to undo them and their adverse economic effects.

Mentions

Previously

; In Bloomberg View:

Index Funds May Work a Little Too Well | Bloomberg

Index Funds May Work a Little Too Well; ; In Bloomberg; 2015-07-22.
Capital Charges and Illicit Indexing; ; In Bloomberg; 2015-07-21.
Should Mutual Funds Be Illegal?; ; In Bloomberg; 2015-04-16.

tl;dr → <quote>[Laugh] about the people who think that index funds should be illegal because they make companies less competitive, but honestly it’s a nervous sort of laughter.</quote>

Original Sources

Elner Elhauge (Harvard); Horizontal Shareholding as an Antitrust Violation; 2015-07-28; 36 pages.

Abstract

Horizontal shareholdings exist when a common set of investors own significant shares in corporations that are horizontal competitors in a product market. Economic models show that such horizontal shareholdings are likely to anticompetitively raise prices when the owned businesses compete in a concentrated market. Recent empirical work not only confirms the prediction of these models, but also reveals that such horizontal shareholdings are omnipresent in our economy. I show that such horizontal shareholdings can help explain fundamental economic puzzles, including why corporate executives are rewarded for industry performance rather than just individual corporate performance, why corporations have not used recent high profits to expand output and employment, and why economic inequality has risen in recent decades. I also show that stock acquisitions that create such anticompetitive horizontal shareholdings are illegal under current antitrust law, and I recommend antitrust enforcement actions to undo them and their adverse economic effects.

Mentions