Scientific Beta

A seminar that introduces the high profitability and low investment factors and provide empirical evidence that justifies their usage, addresses how to combine low investment and high profitability factor tilts, and presents performance comparisons with industry offerings, taking place in Boston on 3 March, 2015 and in New York on 5 March, 2015.

Overview

The Dimensions of Quality Investing seminar will introduce the high profitability and low investment factors and provide empirical evidence that justifies their usage, address how to combine low investment and high profitability factor tilts, and present performance comparisons with industry offerings.

Asset managers and index providers are increasingly touting the benefits of quality investing. Such strategies tilt portfolios to “high quality” stocks, as characterised for example by high profitability, stable earnings or low leverage, which are some of the variables used in practice. However, asset managers and index providers do not use a common definition of “quality,” and a large variety of approaches exist.

The premise of quality investing is that high quality stocks are not sufficiently recognised by the market to increase their price to a level that fully reflects their superior quality - therefore such stocks offer a good investment opportunity. The concept has been traced back to fundamental stock pickers such as Benjamin Graham and Jeremy Grantham.

De facto, systematic filtering, which is proposed today by various index providers, aims at obtaining alpha in competition with traditional active managers without necessarily having all the features of active management, including the ability to integrate forecasts on the evolution of equity characteristics, or new factors which could change the perception of these characteristics.

For academics and defenders of a beta, rather than an alpha, approach, which is, in our view, the only one compatible with index investment, the quality term refers to a whole new dimension: the factor approach.

Rational factor investing does not rely on finding underpriced stocks, but rather seeks to identify factors which lead to systematic risks which investors are unwilling to bear without a commensurate reward. It therefore does not require an ability to pick stocks by processing information in a superior fashion compared to the market. Rather, it tries to identify risk factors with a strong economic rationale, and considerable empirical evidence in favour of a positive risk premium. Interestingly, recent research has identified fundamental characteristics, which are similar to some of the descriptors of “quality,” namely high profitability and low investment. For example, Asness (2014) notes that quality measures tend to “overlap with the profitability and investment factors.” Both these factors have been found to be relevant in explaining the cross section of stock returns. Such factors would be straightforward alternatives to ad-hoc definitions of quality used in the asset management industry currently. The advantage of these factors is that they have been widely documented, extensively tested in the data independently by many academics, and thoroughly explained in terms of economic mechanisms underlying the associated premia.

• The first part of the seminar will introduce the high profitability and low investment factors and provide empirical evidence that justifies their usage.
• The second part of the seminar will address how to combine low investment and high profitability factor tilts.
• The third part of the seminar will present performance comparisons with industry offerings.

Programme

Part 1: Introduction to High Profitability and Low Investment Factors

Part 2: How to Combine Low Investment and High Profitability Factor Tilts

Part 3: Performance Comparisons with Industry Offerings

Seminar Instructor

Eric Shirbini is Global Product Specialist with ERI Scientific Beta. Prior to joining EDHEC-Risk Institute, Eric was a quantitative analyst at UBS, BNP Paribas and Nomura International. During this time he worked on a diverse range of topics including multi-factor models, fundamental stock valuation, equity market indices, portfolio construction and portfolio trading. At BNP Paribas, Eric managed a team of analysts who were responsible for the Global Equity Research Database. He holds a BSc and PhD from University College London and an MBA from CASS Business School.

Who Should Attend

The programme is intended for all professionals involved in passive investment and active management. More generally, this seminar is intended to be a reference for investment management professionals who advise on or participate in the design and implementation of asset allocation policies, equity portfolio models, and for sell-side practitioners who develop new equity investment solutions. The approach to diversifying the different forms of smart beta is also of great interest for diversified managers and multi-managers.

Venue and Timing

Schedule:

Registration

Admission to the seminar is complimentary and by invitation only.

To request an invitation, please contact Séverine Cibelly at severine.cibelly@scientificbeta.com or on +33 493 187 863 or click on the corresponding link below:

Contact

For further information, please contact: