Scientific Beta

Two articles in this supplement are dedicated to the theme of smart beta, firstly comparing different approaches to the design of factor indices in the equity space, notably concentrated indices and more diversified indices, and then providing perspective on misconceptions about performance drivers by drawing on conceptual considerations and empirical evidence.

Two articles in this supplement are dedicated to the theme of smart beta.

A first article, entitled "Concentrate or Diversify – What is the Best Way to Gain Factor Exposure?", compares different approaches to the design of factor indices in the equity space, notably concentrated indices and more diversified indices. Overall, it appears that concentrated factor tilts lead to implementation challenges that are not compensated by better risk-adjusted returns.

A further article on "The Performance Drivers of Smart Beta – Facts and Fiction" then provides perspective on misconceptions about performance drivers by drawing on conceptual considerations and empirical evidence. The analysis shows that, more often than not, superficially convincing claims about smart beta performance drivers stand on shaky foundations.