Financial Times: "Providers of financial indices are facing a new challenge from one of Europe’s leading fund industry research bodies which is planning to offer sophisticated alternative benchmarks for free. The Nice-based EDHEC Risk Institute is to offer 30 “smart beta” indices for free on a dedicated web platform, undercutting commercial index providers."

Financial Times 15/03/2013

"(...) Providers of financial indices are facing a new challenge from one of Europe’s leading fund industry research bodies which is planning to offer sophisticated alternative benchmarks for free.

The Nice-based EDHEC Risk Institute is to offer 30 “smart beta” indices for free on a dedicated web platform, undercutting commercial index providers.

EDHEC’s indices, which are the result of two years of development work, will be unveiled at the institute’s London conference which starts on March 26.

Smart beta is an umbrella term for a wide range of investment strategies such as minimum volatility or equal risk portfolios. A growing body of academic evidence suggests that smart beta strategies can deliver better risk-adjusted, long-term returns than conventional market capitalisation-weighted benchmarks. (...)

(...) Surveys by EDHEC-Risk suggest that more than 40 per cent of institutional investors are now using alternative weighting schemes such as smart beta in their equity portfolios.

But Noël Amenc, director of EDHEC-Risk, says index providers are withholding the data required by investors to perform proper due diligence on smart beta indices.

“Index providers have to change their business models,” said Mr Amenc, who is leading a campaign to reform an indexing industry which is enjoying unprecedented profitability because of rapid growth in the popularity of passive investment strategies.

Mr Amenc says index providers are failing to provide adequate information about the risks embedded in smart beta indices and investors can face damaging periods of underperformance compared with conventional market cap-weighted indices.

In new research published on Monday, EDHEC will say that it is straightforward to improve on the current generation of smart beta indices and that investors, not index providers, should be able to choose the risks to which they are exposed. (...)"