Scientific Beta

Scientific Beta offers single smart factor indices based on academically validated rewarded risk factors and on robust diversification of idiosyncratic risks. This approach ensures their superior long-term risk-adjusted performance relative to their Broad Cap-Weighted reference index for long only indices or in absolute terms for long/short indices. A robust construction process avoids data-mining due to proprietary factor definitions that are extensively used in the industry, which work well in-sample but poorly out-of-sample.

Scientific Beta offers single smart factor indices based on academically validated rewarded risk factors and on robust diversification of idiosyncratic risks. This approach ensures their superior long-term risk-adjusted performance relative to their Broad Cap-Weighted reference index for long only indices or in absolute terms for long/short indices. A robust construction process avoids data-mining due to proprietary factor definitions that are extensively used in the industry, which work well in-sample but poorly out-of-sample.

In addition, single factor indices not only have strong exposure to their desired factor, but also benefit from strong factor intensity overall. Indeed, many single smart factor indices in the industry face the issue of low or negative exposure to other rewarded risk factors despite having high exposures to their desired factor tilt. Tilting a stock selection towards a desired factor often brings low or negative exposures to other rewarded risk factors. The negative interaction effect between risk factors is well known and is due to their non-orthogonality. Strong value stocks often have negative exposures to Momentum. Scientific Beta offers unique single smart factor indices that benefit from a High-Factor-Intensity filter for long only indices. Long branches of our long/short indices filter out stocks with weak multi-factor scores, while short branches of our long/short indices benefit from an anti High-Factor-Intensity filter that removes stocks with strong multi-factor scores. These filters improve factor exposures to other rewarded risk factors, thus enhancing the overall factor intensity and its stability over time.

Finally, Scientific Beta offers a fiduciary risk control option enabling investors to reduce the risks associated implicitly with factor investing. These include sector risks, which are known to be exposed to macroeconomic risks or market risk and could particularly affect the performance of long/short indices. For its long only indices, Scientific Beta offers a sector neutral risk control option to reduce sector exposures. For its long/short indices, Scientific Beta considers risk management as a cornerstone in its construction process; it therefore integrates both sector and market beta neutrality directly.