Smart-Beta Herding and Its Economic Risks : Riding the Dragon?

Smart-beta (or factor) investing industry's assets under management have grown to over $1 trillion. We attempt to survey the merits and risks of this investment style from both professional investors' and academics' points of view. After reviewing academic papers, reports of practitioners in the field and relevant news articles around the topic as well as the literature on herding in financial markets, we conclude that herding in smart-beta is likely taking place, with a distinct and growing possibility of a market correction that would catch many factor investors wrong-footed