Scientific Beta (Video)

Latest webinars from Scientific Beta

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.

Are the Benefits of Multi-Factor Investing Still There? Webinar – Broadcast on 2 October, 2018

In the past two years, the performance of factor strategies has not been as attractive as in the last ten years. Many commentators have concluded that factor crowding phenomena could be eroding the returns associated with traditional long-term rewarded factors. This webinar shows that the recent underperformance of multi-factor strategies is not necessarily related to factors, but is instead linked to non-explicit risks embedded in multi-factor indices or funds. Through its capacity to offer fiduciary options that allow investors to control these hidden or implicit risks, Scientific Beta, with its flagship High Factor Intensity Multi-Beta Multi-Strategy 6-Factor 4-Diversification Strategy offering, provides a simple and transparent response to the risk control objectives desired by investors.

Ultimately, the Scientific Beta Global High Factor Intensity Multi-Beta 6-Factor 4-Strategy Sector Neutral and Market Beta Adjusted indices, which correct the two main non-factor biases of smart beta indices, namely sector and market beta biases, have outperformed their cap-weighted counterpart every year for ten years with average annual outperformance of almost 4%.

This webinar allows these indices, and the non-factor risk-control arrangements associated with them, to be presented.

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?

Benefits of Multi Smart Beta Investing - broadcast on 15 December, 2017

In response to the limitations of cap-weighted indices, all Scientific Beta offerings stem from the same investment principles. The Smart Beta 2.0 framework provides the benefits of explicit risk control. The diversification of specific and unrewarded risks is a core part of the design of all of Scientific Beta’s offerings. Not only does it reduce their specific volatility but it also improves their long-term risk-adjusted performance in comparison with traditional cap-weighted or non-diversified factor indices.

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

Topics covered include:

  • Investment Philosophy
  • Principles of Multi-Beta Offerings
  • The Performance of Scientific Beta Multi-Beta Offerings


In light of increasing investor interest in multi-factor solutions, product providers have recently been debating the respective merits of the “top-down” and “bottom-up” approaches to multi-factor portfolio construction. Our recent research shows that focusing solely on increasing factor intensity leads to inefficiency in capturing factor premia, as exposure to unrewarded risks more than offsets the benefits of increased factor scores. High factor scores in “bottom-up” approaches also come with high instability and high turnover.

Our approach considers cross-factor interactions in “top-down” portfolios through an adjustment at the stock selection level. This approach leads to higher levels of diversification and produces higher returns per unit of factor intensity. It dominates “bottom-up” approaches in terms of relative performance, while considerably reducing extreme relative losses and turnover.

The objective of this webinar is to compare “bottom-up” methodologies that rely on multi-factor score-weighting to build concentrated portfolios to achieve higher composite exposure across targeted factors with less concentrated “top-down” multi-factor approaches.

This webinar is hosted by Felix Goltz, Head of Applied Research, EDHEC-Risk Institute and Research Director, Scientific Beta.

Topics covered include:

  • Considering cross-sectional negatives of single factor indices, seeking maximum exposure to rewarded factors, portfolio concentration versus diversification; what are the issues behind the “bottom-up” versus “top-down” debate?
  • From alpha to beta to stock picking: do stock factor champions exist?
  • What are the limits of “bottom-up” approaches?
  • Can we reconcile the “top-down” approach and consideration of cross-sectional negatives of single smart factor indices combinations?
  • What method can be used to maximise the benefits of factor investing?

Assessing the Crowding Hypothesis webinar broadcast on 12 January, 2017

Smart Beta strategies, as one of the strongest growth areas in investment management recently, have established a space in between traditional capitalisation-weighted (or “cap-weighted”) passive investments and traditional (proprietary and discretionary) active management. Perhaps unsurprisingly, Smart Beta has drawn fierce criticism from both advocates of traditional active management and of traditional passive management.

Among such critiques, a recurring issue is the presumption of a risk of “crowding” in Smart Beta strategies. While crowding is commonly pointed to as a potential risk, it is rarely formalised or even defined. This absence of definition is an issue when none wants to draw founded conclusions. Indeed, if it is now clear how crowding is defined or how it can be measured, it is rather futile to talk about whether or not it has or will occur.

The main idea behind a crowding risk is that, as everyone knows about successful Smart Beta strategies and increasingly invests in them, flows into these strategies will ultimately cancel out their benefits. If an increasing amount of money starts chasing the returns to a momentum strategy for example, it is possible that the reward for holding this strategy - which has been documented with historical data - will ultimately disappear.

This webinar, hosted by Felix Goltz, Head of Applied Research, EDHEC-Risk Institute and Research Director, Scientific Beta, addresses the insights to be gained from considering the economic rationale of factor premia and review the empirical evidence on crowding.

Topics covered include:

  • What can be learnt from academic research on the development of risk premia factors?
  • How to evaluate factor crowding risk
  • What are the appropriate and inappropriate responses to factor crowding risk?

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