Scientific Beta

The inaugural issue of the Pensions & Investments/EDHEC-Risk Institute Research for Institutional Money Management supplement contains two articles on the subject of smart beta investing. The first discusses the “Smart Beta 2.0” approach developed by EDHEC-Risk Institute which allows investors to invest in these advanced forms of benchmarks with full knowledge and control of the risks of their choice. The second article examines alternative equity-diversification strategies, explaining the conceptual groundings behind five alternative weighting schemes identified by ERI Scientific Beta as being credible vehicles for diversification. 

Smart-beta investing in equities is becoming more and more popular as reservations about the suitability of cap-weighted equity indexes for investment, long expressed in the academic literature, have increasingly come to the fore. In our article on the subject, we discuss the “Smart Beta 2.0” approach developed by EDHEC-Risk Institute. At a time when it is universally recognized that the ability to manage risks effectively is of paramount importance for asset owners, this approach allows investors to invest in these advanced forms of benchmarks with full knowledge and control of the risks of their choice.

In a further article, we examine alternative equity-diversification strategies. We explain the conceptual groundings behind five alternative weighting schemes identified by ERI Scientific Beta, an EDHEC-Risk Institute venture, as being credible vehicles for diversification. We emphasize their intrinsic specific and systematic risks, as well as the impacts of these risks on their individual conditional and unconditional performance and risk profiles, and we introduce a multistrategy approach which aims at diversifying away these risks and provides a solution for gaining robust exposure to smart beta.