Scientific Beta

ETF.com: "The so-called “smart factor” indices are built on the ERI Scientific Beta platform by investors. Investors pick their geography and one of 24 "risk tilts"; for example, high momentum, which defines the stock selection. The stocks are then weighted by taking the average weighting from five strategies: maximum deconcentration, minimum variance, diversified risk weighting, maximum Sharpe ratio and maximum decorrelation. This enables “double diversification”.

ETF.com 12/02/2014

"(...) ERI Scientific Beta has launched a range of smart beta indices providing access to various risk strategies in developed countries, which follows on from its announcement in September. The so-called “smart factor” indices are built on the ERI Scientific Beta platform by investors. Investors pick their geography and one of 24 "risk tilts"; for example, high momentum, which defines the stock selection. The stocks are then weighted by taking the average weighting from five strategies: maximum deconcentration, minimum variance, diversified risk weighting, maximum Sharpe ratio and maximum decorrelation. This enables “double diversification”, according to Eric Shirbini, business development director Europe at ERI Scientific Beta, as the index is diversified in stock weighting and strategy. “The problem is that fundamental indices [currently in the market] are just as concentrated as cap weighted indices and that exposes investors to unrewarded and unspecific risks, and that is what we are trying to avoid,” he said. These risks could be in sector concentration, currency or commodities, or risks of specific stocks. One example is high exposure to utilities through a minimum volatility strategy. The alternative is to have a combination of five strategies in one index. In total 216 new indices will be launched across nine regions, multiplied by 24 different kinds of stock selection. (...)"