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This article originally appeared on ETF.COM here.

Factor-based investing seeks to capture the long-term premiums highlighted by academic researchers. Factors are the security-related traits/characteristics that give rise to common patterns of return across broad sets of securities.

To identify factors, researchers typically construct long/short portfolios that are long the preferred exposure and short the unwanted exposure. Most mutual funds employing factor-based strategies are long only. Funds that are long/short typically are referred to as style premium funds (i.e., AQR’s Style Premia Alternative Fund (QSPRX)). They offer a “pure play” on the premium by eliminating (or by minimizing) exposure to market beta that comes with long-only strategies. Thus, they provide additional diversification benefits. (Full disclosure: My firm, Buckingham Strategic Wealth, recommends AQR funds in constructing client portfolios.)

Unfortunately, the financial media and some practitioners refer to factor-based investing as “smart-beta” investing. When asked about the term “smart beta,” Nobel Prize-winner William Sharpe’s response was that it made him sick. While much, if not the vast majority, of what Wall Street will call smart beta makes me sick as well, one can make the mistake of throwing out the proverbial baby with the bathwater. That’s what I believe Bill Sharpe and many others may be doing.

I’ve explained before why I think most of what is called smart beta is really nothing more than a marketing gimmick – the result of loading on factors (such as size, value, momentum and profitability/quality) other than market beta. Most smart beta products are not delivering alpha (which is what is often implied by the term “smart”), just beta on other factors.

However, as I’ve also pointed out, pure indexing strategies possess certain weaknesses that can be minimized, if not eliminated. Creating fund construction and implementation rules that do so could be described as smart beta.