What Moneyball and smart beta investing have in common

Instead of relying on reputation, instinct and tradition, they built a rules-based system designed to identify the statistics that helped teams win games. While baseball traditionalists hated it, the results became impossible to ignore.

Smart beta investing applies a similar idea to markets.

For decades, traditional indices have largely been built on the stock market’s “voting machine” (to paraphrase Warren Buffett). The bigger the company, the bigger its weighting in the index. At various points that has left Australian investors heavily exposed to banks and miners, while US indices have become dominated by a handful of technology giants.

Smart beta emerged from a simple challenge to this approach. Rather than blindly following market size, smart beta strategies tilt portfolios toward characteristics such as quality, momentum or value, or they target outcomes such as higher yields, outperformance or better diversification. What began as a niche institutional concept has since become a major part of global ETF investing.

What is smart beta?

Smart beta strategies use transparent, rules-based methodologies to target specific investment characteristics (factors). The first of these strategies appeared in the mid-2000s but did not hit mainstream adoption until the mid-2010s.

Examples of factors include:

• Quality: Companies exhibiting strong balance sheets and stable earnings
• Value: Stocks trading at lower valuations relative to fundamentals
• Momentum: Companies demonstrating stronger price trends
• Low volatility: Strategies designed to smooth market swings
• Equal weight: An approach which aims to reduce concentration risk by equal weighting companies
• Growth: Businesses with stronger earnings appreciation potential

In practice, smart beta sits somewhere between passive and active investing: systematic like an index fund, but more selective in how exposures are built.

Why smart beta has gained traction

Much like the Oakland Athletics in Moneyball, smart beta investing starts from the idea that markets do not always reward the characteristics that matter most over the long term. In baseball, it was on-base percentage. In investing, it may be profitability, balance-sheet strength, diversification or momentum.

Part of smart beta’s appeal is that it attempts to address some well-known weaknesses in traditional portfolio construction.

Market-cap weighted indices naturally allocate more money to the market’s largest companies, regardless of valuation, diversification or financial quality. Over time, that can create unintended concentration risk.

Australia provides a good example. Traditional equity benchmarks can become heavily dominated by banks and large resource companies, creating concentration risk that many investors may not fully appreciate.

Different smart beta strategies are designed to address different investment challenges:

• Equal-weight approaches such as the VanEck Australian Equal Weight ETF (ASX: MVW) aim to reduce concentration risk by spreading exposure more evenly across companies rather than simply allocating more capital to the market’s largest stocks.
• Other single-factor strategies take a different approach. For instance, the VanEck MSCI International Quality ETF (ASX: QUAL), now the largest smart beta ETF on the ASX, focuses on companies with high profitability, stable earnings and lower financial leverage – characteristics that have historically demonstrated stronger downside resilience during periods of market stress. Similar single-factor investing styles exist in our Value product (ASX: VLUE) and Growth product (ASX: GWTH).
• Other strategies take the idea further by combining multiple factors within the same portfolio. For example, the VanEck MSCI Multifactor Emerging Markets Equity ETF (ASX: EMKT) combines value, momentum, quality and low-size factors within emerging markets, recognising that no single factor consistently outperforms in every environment.

Beyond equities: Smart beta in fixed income

While factor investing is most associated with shares, the same principles can also be applied in bond markets.

Traditional bond indices typically allocate more capital to the biggest borrowers. The more debt an issuer has outstanding, the larger its weighting becomes. Smart beta fixed income strategies attempt to improve on this by incorporating factors such as credit quality, income generation, duration management and issuer fundamentals.

For investors seeking higher income with a more selective approach to credit exposure, strategies such as the VanEck Australian Corporate Bond Plus ETF (ASX: PLUS) reflect this more deliberate style of portfolio construction. Rather than simply owning the largest debt issuers, PLUS includes only the highest-yielding, investment grade bonds to build a more considered fixed income portfolio.

The growth of smart beta among investors

What began as a niche institutional concept has become a major force in global ETF investing.

Globally, smart beta and factor-based ETF assets have grown sharply over the past decade as investors have searched for alternatives to both benchmark-hugging active managers and traditional market-cap weighted indices. In Australia, smart beta ETFs make up roughly 15% of the market’s assets under management. Industry assets, however, have almost doubled from $28.0 billion at the end of 2023 to $53.7 billion by 30 April 2026. Over the past decade, the category has delivered a compound annual growth rate (CAGR) of more than 40%, driven largely by new investor flows rather than simply rising markets.

The shift reflects a broader change in investor behaviour. A decade ago, most investment conversations revolved around active versus passive investing. Increasingly, investors are asking a different question: what exactly sits inside the index they own?

That evolution has driven demand for more deliberate portfolio construction. Strategies such as QUAL, MVW, EMKT and PLUS all apply smart beta principles differently because the characteristics that matter in individual asset classes are not necessarily identical.

In many ways, that mirrors the broader lesson from Moneyball. The edge did not come from predicting the future better than everyone else. It came from building a more disciplined system for making decisions.

A long term approach

One of the most memorable lines in Moneyball comes when the Oakland Athletics realise they are no longer competing on the same terms as wealthier clubs. They cannot buy the biggest stars, so they change the way they build the team.

Smart beta investing reflects a similar shift in thinking.

It is not an attempt to outguess every market move or discover a flawless formula for outperforming. It is an attempt to build portfolios more deliberately than traditional indices allow – using evidence, discipline and portfolio construction rules rather than simply following market size wherever it leads.

Explore VanEck’s smart beta strategies

VanEck has been at the forefront of smart beta investing in Australia for more than a decade, helping bring factor investing to Australia well before the category entered the mainstream.

Today, VanEck’s smart beta range spans equal-weight, quality, value, growth and multi-factor approaches. Together, these strategies reflect a broader philosophy that smart beta is not a single investment style, but a toolkit for building portfolios more deliberately.

Explore VanEck Australia’s Smart Beta hub for more insights on factor investing, smart beta ETFs and portfolio construction strategies.

Key Risks

An investment in any of the funds may carry risks associated with: ASX trading time differences, financial markets generally, individual company management, industry sectors, foreign currency, country or sector concentration, hedging, political, regulatory and tax risks, fund operations and tracking an index. While it is not possible to identify every risk relevant to your investment, we have provided details of the risks that may affect an investment in the relevant product disclosure statement and the target market determination.