Scientific Beta

AsianInvestor: "Institutional investors require indices that closely reflect their investment beliefs, objectives, and constraints, which leads them to partner with index providers to build dedicated indices for their investment mandate, according to Felix Goltz, research director at Scientific Beta, a provider of a smart factor and ESG/climate index platform."

AsianInvestor 19/10/2023

"(...) Institutional investors require indices that closely reflect their investment beliefs, objectives, and constraints, which leads them to partner with index providers to build dedicated indices for their investment mandate, according to Felix Goltz, research director at Scientific Beta, a provider of a smart factor and ESG/climate index platform. For example, a pension fund needs an index that incorporates their definition of sustainability when excluding or tilting stocks. Institutional investors may also have specific goals in terms of factor exposures or risk controls that deviate from what is offered in off-the-shelf indices," Goltz told AsianInvestor. These bespoke investment needs are driving the trend of large institutions adopting indices that are tailored to their objectives, he said. (...) Scientific Beta's Goltz agrees that adapting indices could result in a lack of robustness. Furthermore, ad hoc adaptations in one area of index design may have unintended consequences in another area. "For example, inclusion of additional sustainability criteria might alter financial risks of an index or dilute the original sustainability objectives. Index providers need to identify such issues and help investors to navigate the trade-offs between competing objectives in index design," said Goltz. Therefore, it is crucial for index providers to assess the robustness of specifications and apply a rigorous research framework when developing indices, he said. (...)"