Scientific Beta

Enterprising Investor forum, CFA Institute: "In this article, I outline a methodology — which we call EconRisk — to mitigate economic risks of factor-driven equity strategies and eliminate unnecessary tracking error by keeping strong exposures to rewarded factors and preserving diversification benefits."

Enterprising Investor forum, CFA Institute 19/08/2024

Article by Joseph Simonian, PhD, senior investment strategist at Scientific Beta

"(...) Investors often choose diversified, multi-factor strategies to overcome the limitations of traditional cap-weighted benchmarks. These benchmarks are overly concentrated on companies with the largest market capitalization and expose investors to idiosyncratic risks that are not rewarded over the long term. Moreover, cap-weighted benchmarks incorporate no explicit objective to capture exposure to those risk factors that have been documented in the academic literature to offer a long-term reward. (...) In this article, I outline a methodology — which we call EconRisk — to mitigate economic risks of factor-driven equity strategies and eliminate unnecessary tracking error by keeping strong exposures to rewarded factors and preserving diversification benefits. (...)"