"Smart beta," "advanced beta," "alternative beta," "enhanced indexes," "strategy indices," "quantamental indexes"—are the list of monikers describing the intersection of active and passive investing.

We refer to smart beta as strategic beta.

What Morningstar deems as strategic beta is a broad and rapidly growing category of benchmarks and the investment products that track them. The common thread among them is that they seek to either improve their return profile or alter their risk profile relative to more-traditional market benchmarks. In the case of equity products, which account for the overwhelming majority of assets in this arena, the result is typically one or more factor tilts relative to standard market indexes.

Why strategic beta?

First and foremost, we are eager to do away with the positive connotations that may be inferred by the "smart" in smart beta. Not all of the strategies included in this arena are smart, per se.

The term strategic is meant to draw attention to the fact that the benchmark indexes underlying the exchange traded products, mutual funds, and other investment products in this space are designed with a strategic objective in mind. These objectives primarily include attempting to improve performance relative to a traditional market-capitalization-weighted index or altering the level of risk relative to a standard benchmark.

As for the beta in the name, it is not meant to imply beta in the strictest, most academic sense of the term (a measure of a security or portfolio's sensitivity to movements in the broader market). Instead, it is to highlight the fact that this is a group of index-linked investments, all of which have the goal of achieving a beta equal to 1 as measured against their benchmark indexes. Strategic beta may not roll off the tongue as easily as smart beta, but we believe it is a more accurate descriptor--one that doesn't imply that this universe is the index world's equivalent of Lake Woebegon.

A good strategic beta approach must involve five principles:

• Low cost

An absence of stock-forecasting or macroeconomic predictions means a large investment team is not required. A straightforward approach should cost little more than passive indexing. More complex strategies may be priced at a premium but should still be cheaper than active management.

• Sensible index construction

The factors selected must be well-considered. They should be either durable predictors of return, or if not durable, there must be scope to adjust factors over time in a transparent way. Alternatively, factors may not target outperformance but some quality of return that investors demand (for example, high income or low volatility).

• Capable people

Those behind the strategy must have an understanding of financial theory, market reality, as well as expertise in trading/execution.

• A wide investment universe

An advantage of strategic beta is the ability to use computers to process a wide array of information. For example, RealIndex can quickly compare the price/book and price/earnings ratios for every major stock in the emerging markets universe. If there is only a small universe, or the universe is skewed, active managers may be better equipped. The Australian market, dominated by a handful of banking and resource stocks, is vulnerable in that regard.

• Good data

Strategic beta is only as good as the quality of the data. Accounting data (for example, sales and balance sheet figures) can vary greatly. Data must be consistent across countries and industries, or alternatively, it must be rigorously standardised.

A number of strategic-beta approaches have long track records of success and we agree there is some logic to constructing indices using factors beyond just market cap. After all, just because a company is big does not necessarily mean it's a good investment.

But investors must understand what they are buying and why. Strategic beta is not a panacea and inevitably these strategies will go through difficult periods. For example, income-biased strategies will suffer if high-dividend stocks underperform. Value strategies may suffer when the economy is weak or when risk aversion spikes. But given strategic beta's relative transparency, investors should have little to complain about so long as they have done their homework.

When buying a home, size is an important consideration. But the size of the apartment is given in three different ways — carpet area, built-up area and super built-up area. Naturally, it leads to a lot of disconnect between what you pay for versus what you actually get.

Carpet area is what a home buyer may be mainly interested in knowing. It is the useable square feet (sq ft) inside the house, and is the space where you can spread a wall-to-wall carpet. The thickness of the walls is not included in calculating the carpet area. Balcony sections are also generally not included; however, if it is fully covered, it may be added.

Built-up area is the area enclosed in the house. This includes the carpet area, internal and external walls and balcony area. In general, it is 10-20 per cent more than the carpet area.

Super built-up area

Super built-up area is what you pay for when buying a flat. What this includes is the built-up area plus your share of common areas, such as stairs, lobby, and corridor.

The space taken up by common services, such as lifts, pump room or electrical room is also added. Additional shared facilities, such as clubhouse, gym, pool or garden, are also counted proportionally in the super built-up area. Car parking area is not part of the super built-up area and is usually handled separately.

The super built-up area, also known as the saleable area, can be much higher than the carpet area, based on the amenities in the project and the number of homes they are shared with. Builders use what is called the loading factor to the carpet area to arrive at the area you must pay for.

For example, if the carpet area is 500 sq ft and the loading is 30 per cent, you will be charged for 650 sq ft. The higher the loading, the more you have to shell out for the same amount of space inside your home. For instance, a no-frills development without any extra features will have a smaller loading factor compared to a luxury project with a sprawling clubhouse.

Extra payment

It is however, not easy to measure the common facilities; that can be an area of dispute between the buyers and the developers. There are also cases where additional payment was demanded from buyers as the super built-up area was increased due to common area changes in the project. It is wise to check your agreement to understand how the saleable area was actually calculated and the clauses on extra payments.