Scientific Beta

The April 2019 issue of the Research for Institutional Money Management supplement to P&I includes three articles from Scientific Beta on the use of academically grounded factors in investment practice, a defensive offering that is robust over the long term and the risks of making changes to indexes.

The April 2019 issue of the Research for Institutional Money Management supplement to P&I includes three articles from Scientific Beta. 

Firstly, we look at the use of academically grounded factors in investment practice. We observe that the factor finding process often maximizes the risk of finding false factors, so most factors used in commercially available tools and products are likely to be false. We conclude that the use of non-standard factors can lead to unintended exposures and misunderstandings concerning the risk exposures.

Scientific Beta's defensive offering which relies on three different indexes to satisfy investors' various objectives and constraints. In line with the defensive objective, they deliver good levels of volatility reduction and capital protection in bear markets relative to the cap-weighted index.

We examine changes that are made to indexes. Methodologies of factor-based equity indexes undergo frequent changes, leading to inconsistencies over time. Inconsistencies in index methodology make it difficult for investors to evaluate index offerings and may expose them to a risk of relying on spurious performance records.