Smart beta, one of the most popular investment strategies of the past 12 months, could go "horribly wrong" and leave investors nursing large-scale losses, according to one of the pioneers of the concept.
Rob Arnott, chairman and chief executive of Research Affiliates, the US company that developed some of the world's first smart beta indices, has warned that the soaring popularity of these strategies is likely to lead to a severe fall in investment performance. "In the next three to five years, I expect [some smart beta investors] will end up very disappointed," he said.
His company published a report last week, suggesting some smart beta funds could go "horribly wrong" for investors.
Mr Arnott added: "I thought the growth in smart beta was a good thing. Now when I see product proliferation in areas that I think are unwise and that are putting people at risk of performance chasing, that growth ceases to be a good thing."