  Smart beta, also known as strategic beta or factor investing, is the idea of
selecting an investment portfolio in a simple rule-based manner that
systematically captures market inefficiencies, thereby enhancing risk-adjusted
returns above capitalization-weighted benchmarks. We explore the idea of
applying a smart strategy in reverse, yielding a "bad beta" portfolio which can
be shorted, thus allowing long and short positions on independent smart beta
strategies to generate beta neutral returns. In this article we detail the
construction of a monthly reweighted portfolio involving two independent smart
beta strategies; the first component is a long-short beta-neutral strategy
derived from running an adaptive boosting classifier on a suite of momentum
indicators. The second component is a minimized volatility portfolio which
exploits the observation that low-volatility stocks tend to yield higher
risk-adjusted returns than high-volatility stocks. Working off a market
benchmark Sharpe Ratio of 0.42, we find that the market neutral component
achieves a ratio of 0.61, the low volatility approach achieves a ratio of 0.90,
while the combined leveraged strategy achieves a ratio of 0.96. In six months
of live trading, the combined strategy achieved a Sharpe Ratio of 1.35. These
results reinforce the effectiveness of smart beta strategies, and demonstrate
that combining multiple strategies simultaneously can yield better performance
than that achieved by any single component in isolation.
