Scientific Beta

Among the highlights of the November 2014 monthly performance report for the ERI Scientific Beta indices, over the past month, the Scientific Beta factor indices achieve the highest absolute performance compared to competing indices for three factors out of four (mid-cap, momentum and low volatility). The Scientific Beta multi-beta indices also outperform the competing multi-beta indices during the same period. 

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 November 2014 monthly performance report for the ERI Scientific Beta indices: 

• This month, the best performing index among smart factor indices is the SciBeta Developed Growth Diversified Multi-Strategy index, with a relative return of 0.59% compared to broad cap-weighted indices, closely followed by the SciBeta Developed Low Volatility Diversified Multi-Strategy index, with a relative return of 0.54%, while the SciBeta Developed High Volatility Diversified Multi-Strategy index posts the lowest relative return (0.02%). 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 1.33% to 2.72% since inception for the Developed universe.
  
  
• Looking at year-to-date relative returns, we observe that all strategies, except one (high volatility), post positive return relative to cap-weighted. The best performing index among smart factor indices is the SciBeta Developed Low-Volatility Diversified Multi-Strategy index with a relative return of 4.55%.
  
  
• Over the past ten years, the SciBeta Developed Multi-Beta Multi-Strategy EW (Equal Weights) index and the SciBeta Developed Multi-Beta Multi-Strategy ERC (Equal Risk Contribution) index post strong annual relative returns of 2.00% and 1.91%, 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 post positive relative returns (0.24% and 0.23%, respectively), compared to cap-weighted indices.
  
  
• Over the long term, all 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%.
  
  
• Over the past month, the Scientific Beta factor indices achieve the highest absolute performance compared to competing indices for three factors out of four (mid-cap, momentum and low volatility). The Scientific Beta multi-beta indices also outperform the competing multi-beta indices during the same period. The Scientific Beta factor indices and the Scientific Beta multifactor index also post positive relative returns compared to MSCI World, over the last month, while only the competing momentum indices and the MSCI World Value index achieve a positive relative return compared to MSCI World.