Jack Bogle and Smart Beta: Disruption in the Investment Management Industry

Abstract

Jack Bogle, an ardent advocate of low-cost investing, transformed the investment industry in the mid-1970s with the first Vanguard index mutual fund that offered retail investors the opportunity to own the equity market (or at least the 500 companies in the S&P 500 Index) via a transparent, low-governance, high-capacity investment vehicle. Jack’s consistent message over the decades of the futility of trying to beat the market—and therefore the wisdom of cap-weighting—popularized the concept of separating alpha from beta. Without this bifurcation, the smart beta revolution might never have happened. In this article, Rob Arnott and Katy Sherrerd trace the evolution of beta investing from the launch of the Fundamental Index concept that motivated the term smart beta to the much broader beta investing landscape of today. They conclude with four actionable principles for investing in smart beta strategies.