Scientific Beta

Among the highlights of the September 2014 monthly performance report for the ERI Scientific Beta indices, 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 2.06% and 1.99%, respectively, compared to 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 September 2014 monthly performance report for the ERI Scientific Beta indices: 

• 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 2.06% 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 post negative relative returns (-0.65% and -0.68%, respectively), compared to cap-weighted indices. However, year-to-date the relative performance of the two indices remains positive, with a relative return of around 1.00% for both.
  
  
• This month, all smart factor indices post negative returns from both relative and absolute perspectives, with the exception of the SciBeta Developed Large Cap Diversified Multi-Strategy index, which posts a relative return of 0.08% compared to the broad cap-weighted index. The worst performing index is the SciBeta Developed Mid Cap Diversified Multi-Strategy index, with a relative return of -1.23%. However, year-to-date, the relative performance of all smart beta indices, except one (SciBeta Developed High Volatility Diversified Multi-Strategy index) remain positive compared to cap-weighted indices.
  
  
• Since January 1, 1974 (40 years), all diversified multi-strategy indices exhibit a positive relative return compared to cap-weighted indices, with values ranging from 1.11% to 4.75% for the US universe. Performance for multi-strategy smart beta indices exposed to risk factors known to be well rewarded over long periods remains strong with excess annual performance over broad cap-weighted indices ranging from 1.37% to 2.66% 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 1.98%, followed by the SciBeta Developed Low-Div-Yield Diversified Multi-Strategy index with a relative return of 1.38%.