Scientific Beta

Among the highlights of the January 2015 monthly performance report for the ERI Scientific Beta indices, the best performing of the smart factor indices for the month are the SciBeta Developed Low Volatility Diversified Multi-Strategy index and the SciBeta Developed High Momentum Diversified Multi-Strategy index, both with a relative return of 1.66% compared to broad cap-weighted indices.  

Recent years have seen the development of numerous smart beta indices whose weighting schemes depart from those of cap-weighted indices. Smart beta indices may be obtained by tilting economic factors, such as book-to-market, size or volatility, or by introducing greater diversification into the index, as illustrated in multi-strategy indices. The positive performance of smart beta indices over the long term has been largely documented in the literature. However, these indices are exposed to risk factors that differ from those of cap-weighted indices and that may cause variations in performance over short periods. As a result, the presentation of long-term performance is not enough for investors, who are also demanding performance figures over recent and shorter periods. The present report gives a complete picture of smart beta index performance with both long-term and short-term figures that illustrate the variations in performance over the different time periods, as well as the variations in performance between the various strategies. As a result, combining the various smart beta strategies makes it possible to obtain more robust performance.

Among the highlights of the January 2015 monthly performance report for the ERI Scientific Beta indices: 

• The best performing of the smart factor indices for the month are the SciBeta Developed Low Volatility Diversified Multi-Strategy index and the SciBeta Developed High Momentum Diversified Multi-Strategy index, both with a relative return of 1.66% compared to broad cap-weighted indices, while the SciBeta Developed High Volatility Diversified Multi-Strategy index posts the lowest relative return (0.08%). Performance for smart factor indices exposed to risk factors known to be well rewarded over long periods remains strong with annual performance in excess of broad cap-weighted indices ranging from 1.34% to 2.84% since inception for the Developed universe.
  
  
• Over the past month, the Scientific Beta factor indices and the Scientific Beta multifactor index post positive relative returns compared to MSCI World, while some competing indices did not (the Russell Developed Small Cap index, the FTSE Developed Momentum Factor index, the MSCI World Value Weighted index and the Russell High Efficiency Large Cap Developed Value index). The Scientific Beta factor indices achieve the highest relative performance compared to competing indices for two factors out of four (momentum and value). If we compute the average of the four factor relative returns by provider, the best result is obtained for the Scientific Beta indices (1.47%), compared with 1.35% for the MSCI indices, 0.51% for the Russell indices and 0.33% for the FTSE indices.
  
  
• Over the past ten years, the SciBeta Developed Multi-Beta Multi-Strategy EW index and the SciBeta Developed Multi-Beta Multi-Strategy ERC index post annual relative returns of 2.09% and 1.99%, respectively, compared to cap-weighted indices. This month, the SciBeta Developed Multi-Beta Multi-Strategy EW index and the SciBeta Developed Multi-Beta Multi-Strategy ERC index both post positive relative returns of 1.22% compared to cap-weighted indices.
  
  
• Over the long term, all SciBeta Multi-Beta Multi-Strategy indices post positive excess return compared to broad cap-weighted indices. Using long-term US track records since January 1, 1974 (40 years), the EW and ERC benchmarks post respective relative returns compared to cap-weighted indices of 4.09% and 3.88%.