Scientific Beta

aiCIO: "“Although the monkey portfolio arguments may apply to particular strategies, they have been invalidated for the explicit factor strategies we chose as our main test portfolios here, and therefore these claims cannot be applied to smart beta strategies in general,” they concluded."

aiCIO 29/03/2016

"(...) However, this is not the case, according to new research from the EDHEC Risk Institute, which appears in the latest Journal of Index Investing issue. “Our results are not supportive of the monkey portfolio argument,” authors Noël Amenc, Felix Goltz, and Ashish Lodh wrote succinctly in their paper, “Smart Beta Is Not Monkey Business.” “For a better understanding of smart beta strategies, it is crucial to analyze their construction principles, performance characteristics, and risk factor exposures,” they wrote, “including not only value and small-cap factors but also a variety of other well-documented risk factors, such as momentum, profitability, investment, low risk, and possibly others.” The trio analyzed equal-weighted portfolios as well as factor indexes, testing for correlations between them and their benchmarks. They also inverted each portfolio to test the strength of the factor tilt in each case. (...) “Although the monkey portfolio arguments may apply to particular strategies, they have been invalidated for the explicit factor strategies we chose as our main test portfolios here, and therefore these claims cannot be applied to smart beta strategies in general,” they concluded. Take that, monkeys. (...)"