TY - JOUR T1 - Tilted and Anti-Tilted Portfolios: <em>A Coherent Framework for Advanced Beta Portfolio Construction</em> JF - The Journal of Index Investing SP - 51 LP - 64 DO - 10.3905/jii.2015.6.1.051 VL - 6 IS - 1 AU - Jennifer Bender AU - Taie Wang Y1 - 2015/05/31 UR - https://pm-research.com/content/6/1/51.abstract N2 - In this article, we propose a framework for building advanced beta (factor) portfolios in a benchmark-centric context. The intuition behind benchmark-aware advanced beta portfolios is simple — overweight securities that rank high on the characteristic, or factor, the portfolio is meant to capture and underweight, or exclude, securities that rank low on that characteristic. We outline a general framework for building benchmark-aware advanced beta portfolios, what we refer to as portfolios “tilted” towards a certain factor. We discuss the various methodological extensions that can then be made within this framework, and relate current popular smart beta indices to this framework. The tilted framework has strong intuitive properties. It can be used to build “anti-tilted” portfolios, which overweight stocks that rank unfavorably along the characteristic. These anti-tilted portfolios underperform the benchmark, reflecting the coherency of this framework. We contend that as factor investing evolves, this benchmark-centric framework is a more consistent and coherent way to view advanced beta portfolio construction than benchmark-independent approaches.TOPICS: Factor-based models, portfolio construction ER -