Scientific Beta

Asia Asset Management: "ERISB finds that only the indices termed “fundamental” behave like monkey portfolios. The reasons, it adds, are due to firstly, their method of construction, which is based on accounting criteria that are not associated with any statistically significant risk premiums over the long term, and secondly, their high level of concentration, which results in a large proportion of specific risk that leads to random outcomes."

Asia Asset Management 31/03/2016

"(...) ERI Scientific Beta (ERISB) cautions against the over-generalising of smart beta strategies, following a study it conducted which invalidates the claims of smart beta critics, who often tout such strategies as “monkey business”. According to ERISB, proponents of the “monkey business” theory often argue that the outperformance of smart beta strategies in generating positive value and small-cap exposure can also be obtained via any random portfolio strategy and their inverses. While conceding that the arguments may hold true for certain specifications, ERISB emphasises that they do not hold in general. In its study entitled Smart Beta is not Monkey Business, issued in March, ERISB finds that only the indices termed “fundamental” behave like monkey portfolios. The reasons, it adds, are due to firstly, their method of construction, which is based on accounting criteria that are not associated with any statistically significant risk premiums over the long term, and secondly, their high level of concentration, which results in a large proportion of specific risk that leads to random outcomes. (...)"