Scientific Beta (Video)

Latest webinars from Scientific Beta

“Defensive Equity to Improve Performance of Multi-Asset Portfolios” Webinar on April 8, 2021

Defensive Equity to Improve Performance of Multi-Asset Portfolios

Defensive equity solutions are popular strategies because they provide better downside protection while also delivering good risk-adjusted returns, both on a standalone basis and in the context of a multi-asset portfolio.

Through our Dynamic Defensive offering, we demonstrate how you can increase your allocation to equity to boost returns of a multi-asset portfolio without increasing the overall portfolio risk profile in an elegant cost efficient manner. The multi-asset portfolio allocating to the Scientific Beta Dynamic Defensive solution can achieve much higher risk-adjusted returns over the long-term than a traditional benchmark or a traditional defensive strategy allocation.

At this webinar, we detail the Scientific Beta robust dynamic defensive solution. This offering addresses the drawbacks of traditional defensive strategies and notably provides a reduction in market beta and volatility in distressed times, i.e. it is defensive when needed most. This new solution allows volatility to be smoothed through time and consequently improves average and extreme risks as well as risk-adjusted returns that allow for an increasing allocation to equity exposure while maintaining the same level of overall risk exposure relative to a traditional 60/40 portfolio. 

Topics covered include:

  • Drawbacks of traditional defensive strategies
  • Presentation of the Scientific Beta Dynamic Defensive Solution based on a robust low volatility index and volatility forecasting method
  • Application of Dynamic Defensive in the context of multi-asset portfolios

 

 

“Sustainable Investing with ESG Rating Uncertainty” Webinar on March 4, 2021 

Presenting research findings from the EDHEC Scientific Beta “Advanced Factor & ESG Investing” Research Chair

The EDHEC Scientific Beta “Advanced Factor & ESG Investing” research chair was set up to transfer academic knowledge to the investment industry by providing high-quality research for decision-makers in the professional arena. The primary motivation for the research chair is to respond to real-world questions regarding factor investing with research that is recognised for its scientific quality.

At a special webinar held on March 4, 2021, we presented the research findings of the “Sustainable Investing with ESG Rating Uncertainty” publication in which the authors analyse the equilibrium implications of ESG rating disagreement for portfolio decisions and asset pricing.

Rating disagreement leads to higher effective risk aversion, higher market premium, and lower demand for stocks. Disagreement also tilts the negative ESG-CAPM alpha relation and affects the systematic risk exposure of individual stocks. Combining ESG ratings from six major rating agencies, we provide supporting evidence for the model predictions. Our findings help reconcile the mixed evidence on the cross-sectional return predictability of ESG ratings and they suggest that the lack of consistency in ESG ratings could distort the risk-return trade-off.

Sustainable Investing with ESG Rating Uncertainty

“Does a Good Overall Portfolio Climate Score always Correspond to a Positive Strategy for the Climate?” Webinar on 4 February, 2021 at 2.00pm CET

As part of its webinar series on “Climate Change: The Devil is in the Details”, Scientific Beta is very pleased to present a series of three webinars.

Portfolio-level ESG scores are typically computed as weighted averages of constituent-level scores which translate assessments across a host of criteria into one convenient number.

The third and final webinar of the series looks at the limitations of traditional ESG scores in the context of climate change with specific emphasis on the issue of rating divergence and misalignment of environmental scores with climate change issues. It also sheds light on the risks involved with the use of portfolio averages as a goal or constraint in portfolio construction. 

Finally, it shows how norms-based negative filtering and positive filtering or weighting on the basis of convergent and specific data can guide the construction of climate positive strategies.

Does a Good Overall Portfolio Climate Score always Correspond to a Positive Strategy for the Climate

“Using Carbon Intensity for Portfolio Management – Why Denominators Matter”

As part of its webinar series on “Climate Change: The Devil is in the Details”, Scientific Beta is very pleased to present a series of three webinars.

This second webinar discusses carbon metrics for portfolio construction and reporting and notably the use and misuse of Enterprise Value for normalisation of emissions in the context of the December 2020 Delegated Regulation laying out standards for EU Climate Benchmarks.

It distinguishes between the carbon metrics needs pertaining to portfolio construction and those pertaining to reporting, reviews common carbon footprinting and exposure metrics identified by the Task Force on Climate-related Financial Disclosures, and discusses issues linked to the introduction by the European Commission of an alternative, enterprise-value based version of the popular weighted average carbon intensity indicator.

The webinar shows how the variation introduced by the regulator encourages greenwashing by promoting portfolio construction approaches that afford insufficient consideration to real-economy, issuer-level progress on emissions mitigation. It concludes with index methodology due diligence advice for investors concerned with real-world impact.

“Using Carbon Intensity for Portfolio Management – Why Denominators Matter”

‘Intangible Capital in Factor Models’ Webinar on December 14, 2020

The EDHEC Scientific Beta “Advanced Factor & ESG Investing” Research Chair was set up to transfer academic knowledge to the investment industry by providing high-quality research for decision-makers in the professional arena. The primary motivation for the research chair is to respond to real-world questions regarding factor investing with research that is recognised for its scientific quality.

At a special webinar held on December 14, 2020, we presented the research findings of the first research chair publication entitled “Intangible Capital in Factor Models,” in which the authors study the impact of increasingly substantial intangible capital on popular asset pricing models.

This study is among the first to examine the asset pricing implication of incorporating off-balance-sheet intangible assets to address the potentially distorting effects of fully expensing R&D and SG&A on measuring value, profitability, and investment.

‘Intangible Capital in Factor Models’ Webinar on December 14, 2020

 ‘Can we Trust Scope 3 to Select Stocks based on their Climate Performance?’ Webinar on December 17, 2020

As part of its webinar series on “Climate Change: The Devil is in the Details”, Scientific Beta is very pleased to present a series of three webinars.

This first webinar looked at why investors should treat the integration of value chain considerations into asset selection with extreme caution lest they should encourage greenwashing. We suggest that value chain emissions may be used to guide overall policy, implement sector allocation or initiate engagement with companies. Additionally, value chain considerations may still be included into asset selection via specific, security-level performance metrics and/or corporate commitment to decarbonisation.

At this webinar, we show why we recommend that concerned investors advocate for Scope 3 accounting in their policy and issuer engagements.

‘Can we Trust Scope 3 to Select Stocks based on their Climate Performance?’ Webinar on December 17, 2020

 

IPE EDHEC Research Insights Supplement Autumn 2020

 - Meet the Authors Webinar on December 8, 2020

The EDHEC Research Insights supplement to Investment & Pensions Europe (IPE) aims to provide European institutional investors with an academic research perspective on the most relevant issues in the industry today.

Several of the authors who participated in the Autumn 2020 supplement were very pleased to present the selection of articles below at a special webinar:

201208 IPE supplement

- Robustness of smart beta strategies: a competitor overview: We assess the robustness of a set of competitor and Scientific Beta indices both from an index design point of view and with the lens of our robustness measurement protocol.

- Has your value definition just expired?: We demonstrate that an intangible-adjusted value factor adds investment value for multi-factor investors.

- Carbon intensity bumps on the way to net zero: We look at the use of Enterprise Value for normalisation as recently mandated by the European Benchmark Regulation.

- ESG engagement and divestment: mutually exclusive or mutually reinforcing?: We show that far from being incompatible with ESG engagement, ESG filtering sends a clear and consistent divestment message that allows an effective engagement policy to be implemented.

- The benefits of the historical volatility adjustment risk control option: We present the historical volatility adjustment (HVA) risk-control option aimed at investors who want their factor strategy to remain defensive during episodes of severe market stress.

 

Is there still room for the Size factor in the factor menu? Webinar on November 24, 2020

Several studies report relatively weak performance for the Size factor when looking at a short time period, or when considering the factor in isolation. Given these results, a common conclusion is that the Size factor should be omitted from an investor’s menu of factors. 

However, an analysis of the most recent state-of-the-art asset-pricing models shows that all these models agree on the inclusion of the Size factor.

At this webinar, we analyse the cost of removing the Size factor and assess the relevance of the Size factor. Rather than asking which factor has the highest stand-alone performance, we look at the marginal impact of the Size factor when including it in the menu along with other factors.

Is there still room for the Size factor in the factor menu?

Topics covered include:

- Do state-of-the-art asset pricing models still include the Size factor?

- Using the Size factor to diversify exposure to quality, momentum and low risk factors

- Using the Size factor to diversify macroeconomic risks in equity portfolios 

Does ESG investing really have an influence on companies? Webinar on November 5, 2020

It is often argued that an investor who is dissatisfied with a company’s ESG behaviour, and who wishes to remedy the situation, needs to stay on as its shareholder and engage with it. Indeed it is believed that if the investor divests from the company, their influence over the company will cease. Moreover, the act of divesting is often presented as a passive approach that has no bearing on the company’s management, a capitulation rather than a form of action.

Does ESG investing really have an influence on companies?

At this webinar, we demonstrate that both divestment and engagement are actions that promote change. We also illustrate the empirical results of academic studies and show that both approaches can be effective.

Topics covered include:

- What is the evidence on the efficacy of engagement strategies?

- How can investors combine divestment with effective engagement?

- How can investors make sure they send consistent signals to companies they engage with?

Intangible Capital and the Value Factor: Has Your Value Definition Just Expired? Webinar on September 10, 2020

With the rise of intangible assets, the standard value definition, book-to-price, has come under attack. Reported book value mostly ignores investments into intangible assets. As a solution, factor designers propose combining other valuation ratios, such as earnings-to-price, sales-to-price, cash flow-to-price or dividend yield. However, this solution overlooks a superior alternative: intangible capital can be estimated and added to the book value.

Intangible Capital and the Value Factor - Has Your Value Definition Just Expired?

In this webinar, we compare these alternative solutions.

Topics covered include:

- Why the value factor has nothing to do with determining the true value of a stock

- Do different value factors add value beyond picking up implicit exposure to other factors?

- Do different value definitions align with a risk-based explanation for the value factor?

 

Current Misconceptions in ESG Investing: the Case of Low Carbon Strategies Webinar Broadcast on July 28, 2020

Current Misconceptions in ESG Investing - the Case of Low Carbon Strategies Webinar Broadcast on July 28, 2020

Investors are increasingly aware of ESG and Low Carbon integration in equity portfolio construction. Still, there is a debate in the industry on how to address this goal in an effective way. One of the most widely discussed topics is the idea that in addition to its good financial qualities, an ESG portfolio is also liable to outperform the market in terms of risk-adjusted performance. As such, a large number of strategy providers have presented Low Carbon strategies as benefitting from a Carbon factor effect.

In this webinar, we examine whether there is a Carbon factor with a significant risk premium and whether mixing ESG/Low Carbon objectives with financial objectives adds value to performance; questions on the veritable impact of Low Carbon financial strategies on the real economy are also addressed. 

Topics covered include:

  • Is carbon a rewarded factor?
  • Is there a benefit to using carbon scores to construct portfolios? Do carbon scores allow an investor to be smart?
  • Does a low carbon portfolio help to decarbonise the real economy?

 

Assessing the Robustness of Smart Beta Strategies Webinar Broadcast on July 16, 2020

Assessing the Robustness of Smart Beta Strategies Webinar Broadcast on July 16, 2020

Assessing the robustness of smart beta strategies should play a central role for investors in their due diligence process. Such strategies often experience an out-of-sample degradation of performance compared to that presented in the historical in-sample period. Investors should always check that interesting in-sample results are complemented by a consistent construction framework and transparency on the methodology and implementation from the side of the strategy provider.

They should also be able to measure the robustness directly using appropriate tools and metrics in order to cross-check whether the strategy’s behaviour is consistent with its stated objective. This way, they can be in a better place to select those strategies that will perform out-of-sample in a manner consistent with their historical (simulated) profile.

However, assessing the robustness of a strategy based on historical simulations can become challenging due to sample dependence.

This webinar discusses why robustness is essential for investors using smart beta strategies and describes the sources of deficiencies. It also explains the need for robustness checks in performance analysis of such strategies and the various methods by which Scientific Beta improves robustness. Finally, it assesses the robustness of a set of competitor and Scientific Beta indices both from an index design point of view and through the lens of Scientific Beta’s robustness measurement protocol.

Evaluating and Improving the Diversification of Global Equity Portfolios Webinar Broadcast on July 9, 2020

Evaluating and Improving the Diversification of Global Equity Portfolios Webinar Broadcast on July 9, 2020

Smart beta solutions seek to improve returns, reduce risks and enhance diversification for investors by delivering exposure to systematic investment factors. Scientific Beta’s diversification analytics measure the benefits of portfolio diversification after adjusting for the effect of factor exposures.

At this webinar, Scientific Beta looks at a new approach to analyse and improve institutional investors’ portfolios.

The webinar was hosted by Eric Shirbini, PhD, Global Research and Investment Solutions Director at Scientific Beta and featured an introduction by Arnaud Jobert, PhD, Managing Director, Global Head Equities Investable Indices at J.P. Morgan.

Topics covered include:

- Cooperation between Scientific Beta and J.P. Morgan in the context of single factor investing

- Types of factor diversification (de-concentration, risk reduction, conditional diversification)

- Different measurements of factor diversification

- Use of long-only or long/short single-factor indices to implement a completeness portfolio

- Case study: Improving portfolio diversification with limited completeness portfolio and high turnover constraints; Factor completion through J.P. Morgan Nexus platform

 

Crowding Risk in Smart Beta Strategies Webinar Broadcast on June 16, 2020

Crowding Risk in Smart Beta Strategies Webinar Broadcast on June 16, 2020

As smart beta strategies gain in popularity, there are concerns that flows into these strategies will ultimately cancel out their benefits. However, such claims are rarely based on solid empirical evidence. The academic literature has not only documented risk premia for the standard factors but has also provided theoretical explanations for persistence, notably if factors are compensation for taking on additional types of risk. Moreover, precautions against crowding risks can be taken by proper implementation of factor investing and smart beta indices. In particular, the best precaution against crowding seems to be diversification.

It is possible that smart beta and factor strategies can be subject to adverse effects due to a wide following but one can only conclude that this is the case if there is evidence for it. Losses in a given strategy, meanwhile, are not evidence of crowding. Periodic underperformance may be due to normal fluctuations in prices.

The webinar, hosted by Felix Goltz, Research Director at Scientific Beta, examines the crowding risk of smart beta strategies and details Scientific Beta’s new research that has failed to find evidence that smart beta strategies have been adversely affected by a crowding effect.

 

A New Dynamic Defensive Solution That is Really Low Volatility Webinar Broadcast on June 4, 2020

A New Dynamic Defensive Solution That is Really Low Volatility Webinar Broadcast on June 4, 2020

Defensive equity solutions are popular strategies because they provide better downside protection while also delivering good risk-adjusted returns, since they are exposed to the Low Volatility risk premium.

However, traditional defensive solutions suffer from some clearly identifiable drawbacks, notably negative exposures to other rewarded factors, a lack of diversification and are not truly defensive in periods of high market volatility, at a time when lower risk is needed most. Furthermore, traditional defensive strategies suffer from high carbon exposure compared to a cap-weighted index, which in turn exposes these types of strategies to climate risk.

In this webinar, Daniel Aguet, Index Director, and Eric Shirbini, Global Research and Investment Solutions Director at Scientific Beta detail the Scientific Beta robust dynamic defensive solution. This offering addresses the drawbacks of traditional defensive strategies and notably provides a reduction in market beta and volatility in distressed times, i.e. it is defensive when needed most. This new solution allows volatility to be smoothed through time and consequently improves average and extreme risks as well as risk-adjusted returns. This strategy notably allowed the maximum loss observed in the first quarter of 2020 following the Covid-19 crisis to be reduced by 32% compared to the reference cap-weighted index.

Daniel Aguet and Eric Shirbini also detail the decarbonised version offered for investors who care about climate change.

Topics covered include:

- Drawbacks of traditional defensive strategies

- Presentation of the Scientific Beta Dynamic Defensive Solution Based on a Robust Low Volatility Index and Volatility Forecasting Method

- Reconciling defensiveness and climate change

 

Improving Factor Diversification of an Existing Portfolio Webinar Broadcast on May 14, 2020

Improving Factor Diversification of an Existing Portfolio Webinar Broadcast on May 14, 2020

Good factor diversification is an essential element of the robustness of portfolio performance over the long term, and it is with this in mind that Scientific Beta launched a new service in 2019 named Scientific Beta Factor Analytics Services, which aims to evaluate and improve the diversification of global equity portfolios, whatever their composition.

In concrete terms, asset owners can improve the robustness of traditional strategies by correcting unbalanced factor exposures. As an illustration below, we use Scientific Beta long/short indices as completeness ingredients for a portfolio benchmarked to a traditional defensive index. Without changing the defensive bias of this index, whether involving low volatility exposure or low market beta, by improving its factor intensity and notably the undesired negative exposures to the other long-term rewarded factors, it is possible to improve the risk-adjusted ratio of this portfolio considerably.

How to Reconcile ESG and Factor Investing Webinar

Factor investing in the equity space is increasingly popular, and so is ESG investing, which brings the need to combine the two. Some providers claim that by integrating the two approaches, ESG can add to the financial returns of factor investing, thereby blurring the lines between the drivers of ESG performance and financial performance, and even denying any potential conflicts between the two.

At a special webinar held on February 6, 2020, our experts on ESG and Factor Investing explored how ESG objectives can be reconciled with factor investing and demonstrated the need to keep these two objectives separate.

Topics covered include:
· ESG incorporation approaches for multi-factor indices
· Scientific Beta ESG fiduciary option
· Risks and performance of the ESG fiduciary option

 

Reconciling Low Carbon and Multi-factor Investment Webinar - Broadcasted on January 13, 2020

Combining factor investing and low carbon investing is particularly challenging since factor strategies often have higher carbon impacts than their cap-weighted benchmarks. Some providers claim that the best solution to this issue is to integrate low carbon analysis into the financial analysis. As a result, they do not make a distinction between the drivers of financial performance and the means to fight climate change.

This webinar analyses how Low Carbon objectives can be reconciled with factor investing and demonstrate the need to keep these two objectives separate.

Topics covered include:

  • Relevance of decarbonising multi-factor investments
  • Design of a Low Carbon fiduciary option
  • Risks and performance of a Low Carbon fiduciary option

Inconsistent Factor Indices: What are the Risks of Index Changes? – Broadcast on 11 July, 2019

Frequent changes in index methodology are quite a common occurrence in the smart beta industry. Such changes can sometimes create inconsistencies between different product offerings across time and may affect factor definitions, factor selection, and portfolio construction principles.

In this context, transparency of changes in index offerings and methodologies is crucial because it allows investors to evaluate the quality of different index offerings. It is also important that the changes are consistent with investment objectives.

This webinar analyses the implications of inconsistencies for investors and will illustrate problems with industry practice using examples from recent index changes.

Topics covered include:

• What do inconsistencies mean for investors?

• Which inconsistencies exist in the industry?

• Case study: What is the impact of index changes on performance?

• The importance of being aware of the potential risks of index changes.

 The Risks of Deviating from Academically-Validated Factors Webinar – Broadcast on 13 June, 2019

Factor investing has never been as popular as it is today. However, with the propagation of this type of investment approach, the equity space is becoming increasingly saturated with more and more factors that are ever more removed from academically-grounded research.

In a bid to maintain their apparent competitive advantage and to show that they are still delivering alpha, commercial index providers and asset managers have respectively embarked on a factor finding process that has resulted in the discovery of tens, hundreds or even thousands of factors.

However, proprietary factor definitions and analytic toolkits based on non-standard factor indices can lead to unintended exposures and misunderstandings surrounding the associated risk exposures.The further away they are from academically-validated research, the more spurious and redundant proprietary factor definitions may be.

This webinar, hosted by Felix Goltz, PhD, Research Director at Scientific Beta, discusses factor definitions used in investment products and analytic tools offered to investors and contrasts them with the standard academic factors. It also outlines why the methodologies used in practice pose a high risk of ending up with irrelevant factors.

On the Importance of Taking Hidden Risks into Account for Factor Investing Webinar – Broadcast on 17 January, 2019

Despite all the advantages smart beta strategies can offer to investors, it is important that they be aware of some of the implicit risks that they are subjected to. The decisions on selecting smart beta strategies are often based more on fees and recent performance rather than analysing risks. As a result, the risk implications of smart beta strategies - which often drive this recent performance - are not fully understood.

Smart beta strategies are selected to provide explicit exposure to some well-rewarded factors (Value, Momentum, Low Volatility, Profitability, Low Investment, Size). These factors provide good risk-adjusted returns over the long-term but they are also exposed to a number of hidden or implicit risks that drive short-term performance and can therefore cause big disappointments for investors.

These issues have notably been underlined in a recent Scientific Beta publication entitled “Misconceptions and Mis-selling in Smart Beta: Improving the Risk Conversation in the Smart Beta Space”.

This webinar reviews why hidden risks are important for investors. It focuses on three important implicit risks that smart beta investors are subjected to, i.e.: market beta bias, sector risk and geographical risk. In this webinar, we will look at the impact of these risks and we will also review how the risk control options that allow investors to meet their fiduciary responsibility can be implemented.

 Managing Sector Risk in Factor Investing Webinar – Broadcast on 18 December, 2018

Sector risk is an implicit bet investors take when investing in Smart Factor indices. Even if it is not a priced risk factor in the cross-section of expected returns, sector risk can nevertheless have a material impact on short-term performance.

In a new publication entitled “Managing Sector Risk in Factor Investing”, Scientific Beta researchers focus on the implicit sector risk taken by smart factor indices and analyse the implications for their short- and long-term risk-adjusted performance.

Investors looking to manage short-term risks can use the sector-neutral risk control option offered on Scientific Beta indices. Using the sector-neutral risk option has a clear advantage in terms of relative risk-adjusted performance since information ratios are increased.

This webinar explains the benefits of applying sector neutrality and reviews the sector risk control option offered to investors by Scientific Beta.

Measuring Factor Exposure Better to Manage Factor Allocation Better Webinar - Broadcast on 15 November, 2018

Factor investing offers a big promise. By identifying the persistent drivers of long-term returns in their portfolios, investors can understand which risks they are exposed to, and make explicit choices about those exposures.

When it comes to information about factors, providers offer analytic toolkits to identify the factor exposures of an investor’s portfolio. However, these analytic tools do not employ academically grounded factors and their factor finding process maximises the risk of ending up with false factors. These non-standard factors also lead to mismeasurement of exposures and may capture exposure to redundant factors. In the end, analytic tools for investors do not deliver on the promise of factor investing and they also lack transparency.

Additionally, we may question the way in which the measurement of factor proxies is implemented. Most popular factor analysis tools used by investors deviate from the models used in research because they choose to use factor scores instead of betas. An additional problem is that the one-dimensional nature of factor scores does not take into account correlations across different factors. This leads to the double counting of the exposures of factors that are highly correlated. Lastly, many popular factor scores combine variables into composite factor scores. Combining factor scores into composite scores makes the mismeasurement problems worse as composites from skewed score distributions may be biased towards one of the variables.

This webinar reviews these issues of factor risk measurement and shows how these can be countered.

 

A Critical Analysis of Bottom-Up Multi-Factor Portfolio Construction - broadcast on 1st February, 2018

Scientific Beta’s research teams recently published an important study that is critical of factor investing approaches that aim to maximise and control factor exposures through a bottom-up approach and in-sample optimisation. The ‘Critical Analysis of Bottom-Up Multi-Factor Portfolio Construction’ webinar will detail the conclusions of this study and examine factor exposure control and bottom-up versus top-down approaches. The webinar will also be the occasion to discuss the benefits that institutional investors can expect from dynamically allocating to smart factor indices, with a focus on efficiently reacting to changes in market conditions.

Speaker: Eric Shirbini, PhD, Global Research and Investment Solutions Director with Scientific Beta.

The main points addressed in this webinar will be the following:

  • What are the issues behind the bottom-up versus top-down debate?
  • From beta to stock picking: do stock factor champions exist?
  • What are the limits of bottom-up approaches?
  • What method can be used to maximise the benefits of factor investing?

Long-Term Rewarded Equity Factors: What Can Investors Learn from Academic Research?

Equity index products that claim to provide exposure to factors which have been well documented in academic research, such as value and momentum, among others, have been proliferating in recent years.

Interestingly, providers across the board put strong emphasis on the academic grounding of their factor indices. At the same time, product providers try to differentiate themselves using proprietary elements in their strategy, often leading to the creation of products using new factors or novel strategy construction approaches which may or may not be consistent with the broad consensual findings in the academic literature on empirical asset pricing. Moreover, discussion of the sources of performance is often based on provider-specific research rather than consensual findings in the academic literature.

This webinar, hosted by Felix Goltz, Head of Applied Research, EDHEC-Risk Institute and Research Director, Scientific Beta, addresses what academic research has to say on equity factors. Our objective is to understand which lessons we can learn from such research in terms of designing and evaluating factor indices.

Topics covered include:

  • Analysing the main lessons from academic research on equity factors
  • Addressing implementation costs and the question of crowding risks
  • Discussing how practical implementation relates to the academic groundings

10 Misconceptions in Smart Beta Investing webinar broadcast on 30 June, 2016

Smart beta strategies have been one of the strongest growth areas in investment management over the past decade. Such strategies have also drawn fierce criticism from providers of both traditional active management and traditional passive management. Smart beta providers are not only responding to such criticism, but have been vocal about the benefits of their respective approaches, without necessarily agreeing with each other.

Such debates have the potential to clarify the issues at hand by discussing the facts. Unfortunately, however, by often recurring to superficially convincing arguments that may not align well with the facts, such debates have also led to a number of misconceptions. Misconceptions about smart beta have arisen in different areas, such as performance drivers, investability issues and strategy design choices.

The objective of this webinar was to review ten common claims about Smart Beta and analyse the underlying misconceptions.

The webinar was hosted by Felix Goltz, Head of Applied Research at EDHEC-Risk Institute and Research Director at Scientific Beta.

The Limitations of Pure Factor Investing webinar broadcast on April 19, 2016

In a new research paper published in the Winter 2016 issue of the Journal of Portfolio Management, entitled “Diversified or Concentrated Factor Tilts?”, Scientific Beta has highlighted the limitations of purely factor-driven approaches that aim to concentrate portfolios in a small number of stocks that are highly exposed to one or more risk factors, in order to obtain, over the long term, the best possible return associated with these risk factors. Since it neglects diversification of specific risk, this factor concentration approach exposes the investor to high idiosyncratic volatility and ultimately delivers risk-adjusted performance that is inferior to that of well-diversified factor or multi-factor indices.

By Dr. Felix Goltz, Research Director at Scientific Beta and Head of Applied Research at EDHEC-Risk Institute

Smart Beta is Not Monkey Business webinar broadcast on March 29, 2016

Monkey portfolio proponents argue that all smart beta strategies generate performance that is similar to results obtained by any random portfolio strategy. We analyze these claims using test portfolios that follow commonly employed methodologies for explicit factor-tilted indexes.

Our results show that smart beta strategies display exposure to a variety of factors, and there are pronounced differences in factor exposures across different strategies. An important implication of our results is that a careful assessment of investment philosophy and index design is indeed relevant as such strategies do not behave like monkey portfolios.

By Dr. Felix Goltz, Research Director at Scientific Beta and Head of Applied Research at EDHEC-Risk Institute