Scientific Beta

Among the highlights of the December 2016 quarterly performance report for the ERI Scientific Beta indices, over the past ten years, the SciBeta Developed Multi-Beta Multi-Strategy 4-Factor EW (Equal Weight) index, the SciBeta Developed Multi-Beta Multi-Strategy 6-Factor EW (Equal Weight) index and the SciBeta Developed Multi-Beta Multi-Strategy Quality index post strong annual relative returns of 1.43%, 1.90% and 2.86% respectively, compared to cap-weighted indices.

Recent years have seen the development of numerous smart beta indices whose weighting schemes differ 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 are different 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, which focuses on Scientific Beta indices in the Developed equity universe and the different regions that compose it, 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 December 2016 monthly performance report for the ERI Scientific Beta indices:

• Scientific Beta Multi-Beta Multi-Strategy (MBMS) indices provide an allocation to well-rewarded smart factor indices. Over the past ten years, the SciBeta Developed Multi-Beta Multi-Strategy 4-Factor EW (Equal Weight) index, the SciBeta Developed Multi-Beta Multi-Strategy 6-Factor EW (Equal Weight) index and the SciBeta Developed Multi-Beta Multi-Strategy Quality index post strong annual relative returns of 1.43%, 1.90% and 2.86% respectively, compared to cap-weighted indices.
  
  
• Year-to-date, which in this quarter is also the 2016 full year performance, the SciBeta Developed Multi-Beta Multi-Strategy 4-Factor EW index, the SciBeta Developed Multi-Beta Multi-Strategy 6-Factor EW index and the SciBeta Developed Multi-Beta Multi-Strategy Quality index post relative returns of -0.81%, -0.45% and 0.39% respectively, compared to cap-weighted indices.
  
  
• The year 2016 was marked by a rare event in the investment world where, in the end, four out of the six traditional rewarded factors underperformed the CW reference. This situation, which cannot allow factor diversification to play its role, has been analysed over a long-term period within the framework of the design of the Scientific Beta indices and its probability of occurrence is less than 10%.
  
  
• Over the last ten years, all Scientific Beta Multi-Beta Multi-Strategy indices post positive excess return compared to broad cap-weighted indices. If we consider the 6-Factor EW allocation, the annualised excess return over the past ten years ranges from 1.53% for the SciBeta United Kingdom Multi-Beta Multi-Strategy 6-Factor EW index to 3.50% for the SciBeta Japan Multi-Beta Multi-Strategy 6-Factor EW index.