ERI Scientific Beta Newsletter
"More for Less": A different actor in the indexing industry | |
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Quarterly, Issue 22, July 2018 |
| Managing Sector Risk in Factor Investing |
| Common smart factor indices give explicit exposures to priced risk factors that should provide good long-term risk-adjusted performance. But they are also known to expose investors to a number of hidden or implicit risks as it has been documented in a recent Scientific Beta white paper (Shirbini, 2018). In particular, investors expose themselves to an implicit bet on market beta, since most smart factor indices have a market beta below one. Other implicit risks are macroeconomics risks and sector or country risks. In this article, we will focus on the implicit sector risk taken by smart factor indices and will try to understand the implications on their short and long-term risk-adjusted performance. We will also discuss possibilities to avoid sector risks through appropriate risk control options, in particular the sector neutrality constraints introduced in Amenc and Goltz (2013) and available on the Scientific Beta index platform since its launch in 2013. Our analysis in this article extends the earlier analysis of Amenc et al. (2015), which analysed the benefits of sector-neutrality constraints in value factor indices. More... |
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| Diversification within an Equity Factor-Based Framework |
| This article by Silvio Corgiat Mecio, Senior Portfolio Manager – Portfolio Solutions, Aniket Das, Senior Investment Strategist – Index & Factor-Based Investing and Andrzej Pioch, Fund Manager – Asset Allocation at Legal & General Investment Management, points out that an understanding of the design choices underlying multi-factor products is crucial if investors are to avoid outcomes that may ultimately disappoint them. These design choices include: factor selection, starting universe, multi-factor construction approach, stock weighting scheme, factor weights, regional allocation and currency exposure. More... |
| Tim Taylor, Senior Investment Officer (SIO), Global Equity, Florida State Board of Administration
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| In this interview, Tim Taylor, Senior Investment Officer (SIO), Global Equity at Florida State Board of Administration, explains the choice to replicate Scientific Beta indexes, presents the objectives of the allocation and discusses the benefits and future of smart beta investing. More... |
| Updates on the Partnerships and Licences Established with Industry Participants to Replicate ERI Scientific Beta Indices
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| In this issue, we feature CoreShares, Desjardins Global Asset Management and Legal & General Investment Management. More... |
| Latest Performance Data for the ERI Scientific Beta Indices
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| Performance data for ERI Scientific Beta smart factor and multi smart factor indices over different time periods as of 30 June, 2018. More... |
| Documents authored by ERI Scientific Beta, featuring research in the field of smart beta or on related topics. |
Tackling the Market Beta Gap: Taking Market Beta Risk into Account in Long-Only Multi-Factor Strategies
March 2018 |
| The authors argue that more attention ought to be paid to market exposure when conducting analyses of smart beta strategies. They point out that most research proposing new multi-factor investment methodologies essentially ignores exposure to the market factor, which is the most consensual among all factors and often the most influential factor for a strategy. Overlooking the dominant factor is in stark contrast to the objective of factor investing, which aims to identify and manage the main drivers of risk and return. More... |
Misconceptions and Mis-selling in Smart Beta: Improving the Risk Conversation in the Smart Beta Space
February 2018 |
| Although gaining explicit exposure to priced risk factors is expected to provide good long-term risk-adjusted performance, investing in these very factors also exposes investors to a number of hidden or implicit risks that could be important drivers of short-term performance. To reconcile such risk exposures with investors' preferences, it is crucial that they be well documented. With cap-weighted indices, which represent the default option in terms of a passive investment reference, being increasingly called into question, smart beta's main fiduciary message is that there is no best solution in general, but rather a best solution that allows the investor's fiduciary choices to be executed in the most efficient way. More... |
| Practitioner Publications |
Multifactor Index Construction: A Skeptical Appraisal of Bottom-Up Approaches
Journal of Index Investing, Summer 2018 |
| In this article, the authors contrast the claims of promoters of "bottom-up" approaches for constructing multi-factor equity portfolios with relevant findings in the academic literature. In particular, the authors review findings in the academic literature that raise questions on the reliability of the link between factor scores and returns, on possibilities of overstating the backtest performance of bottom-up portfolios, and on the cost of concentration resulting from the chase of factor champions. More... |
| 6. ERI Scientific Beta News |
| The latest news about ERI Scientific Beta and its activities. |
| Developments to the Scientific Beta Universe and Multi-Beta Multi-Strategy Indices in June 2018 |
| On the occasion of the June 2018 rebalancing, a number of enhancements were made to the Scientific Beta universe and Multi-Strategy indices. These developments correspond to improvements that allow Scientific Beta's clients to benefit from considerable research efforts made over the last two years to improve the conditions for implementing Scientific Beta indices while respecting the objectives and methodological principles that drive the construction of the indices. More... |
| As smart beta is a new frontier for the investment industry, research and education on this subject are a core part of ERI Scientific Beta's strategy. |
Scientific Beta Days North America
25-26 October, 2018 – Boston |
| This two-day conference will include multiple plenary sessions, workshops and practical sessions allowing professionals to review major industry challenges, explore state-of-the-art investment techniques and benchmark practices to advances in research. The first day will focus on smart beta risk management solutions and the second day will concentrate on case studies and practical applications. More... |
| A selection of articles published in the international business or specialised press featuring ERI Scientific Beta and its research. |
- "Smart beta is getting even smarter", Moneyweb (25/06/2018). More...
- "ERI Scientific Beta highlights the importance of market risk in smart beta strategies", ETF Strategy (04/06/2018). More...
- "Single-Factor Products Gather Most Assets", Nordic Investor (31/05/2018). More...
- "Lyxor launches multi-factor long/short equity ETF", ETF Strategy (22/05/2018). More...
- "Market Exposure Needs Attention", Benefits and Pensions Monitor (16/05/2018). More...
- "ERI Scientific Beta names best performing indexes", Money Management (27/04/2018). More...
- "Warnings About Smart Beta From Smart-Beta Index Provider", Validea (04/04/2018). More...
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Director of Research, Scientific Analytics – London
Quantitative Equity Analyst (Research) – Nice |
| As part of its international development programme and in order to strengthen its equity index development activity, the EDHEC group, one of Europe's leading research and teaching institutions, is recruiting for a number of positions at ERI Scientific Beta in Nice and London. More... |
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