Scientific Beta

Risk.net: "The drawdowns of alternative indexes must not be ignored, though they may be better performers in the long term, according to the EDHEC-Risk Institute."

Risk.net 05/10/12

"(...) EDHEC is reminding investors that alternative indexes can have significant drawdowns. (...) The drawdowns of alternative indexes must not be ignored, though they may be better performers in the long term, according to the EDHEC-Risk Institute. "No guarantee exists that in the short term these alternative weighting schemes always outperform cap weighting," states EDHEC in its research paper, Diversifying the diversifiers and tracking error: outperforming cap-weighted indices with limited risk of underperformance, published in August. The institute finds that "the worst performing strategy in one sub-period can be the best performer in the subsequent sub-period, and vice versa," in its comparison of various indexes based on the US equity market, with different weighting schemes. (...)"