Scientific Beta

Among the highlights of the March 2014 monthly performance report for the ERI Scientific Beta indices, over the latest one year period, the High Volatility index and the Low Dividend Yield index were the two best performing indices among smart factor indices, with relative returns of 7.13% and 4.06% respectively 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 March 2014 monthly performance report for the ERI Scientific Beta indices: 

• Over the latest one-year period, the best performing index was the SciBeta Eurozone HLiq Value Maximum Decorrelation (Country Neutral) Index, with a relative return of 30.17% compared to the broad Eurozone cap-weighted index.
  
  
• Over the long term, all diversified multi-strategy indices exhibit a positive relative return compared to cap-weighted indices. Performance for multistrategy smart beta indices exposed to risk factors known to be well rewarded over long periods remains strong with annual excess performance over broad cap-weighted indices ranging from 1.45% to 2.95% since inception for the Developed universe.
  
  
• This month, the best performing index among smart factor indices is the High Dividend Yield index with a relative return of 0.84% compared to broad cap-weighted indices, closely followed by the Low Momentum index with a relative return of 0.72%, while the Low Dividend Yield index and the High Volatility index post the lowest relative return (-1.22% and -1.04%, respectively). However, over the latest one year period, these two indices, namely the High Volatility index and the Low Dividend Yield index, were the two best performing indices among smart factor indices, with relative returns of 7.13% and 4.06% respectively compared to broad cap-weighted indices.