Scientific Beta

ETF Strategy: "Mercer’s first criticism of passive factor investing was to argue that factor strategies and factor indices are actually active approaches since all such strategies involve material deviations from the market cap index (in Mercer’s view, the only ‘truly’ passive approach). ERI Scientific Beta countered by citing research indicating that market cap-weighted indices are actually poor proxies of the hypothetical market portfolio and tend to be highly exclusive and dynamic in respect of their constituents, thereby casting doubt on the notion of these indices being truly passive."

ETF Strategy 15/01/2018

"(...) ERI Scientific Beta, a smart beta index provider and affiliate of the EDHEC-Risk Institute, has jumped to the defence of factor-index investing in a strong rebuttal of a report published by investment consultants Mercer in November 2017 entitled ‘Factor Investing: From Theory to Practice.’ (...) Mercer’s first criticism of passive factor investing was to argue that factor strategies and factor indices are actually active approaches since all such strategies involve material deviations from the market cap index (in Mercer’s view, the only ‘truly’ passive approach). ERI Scientific Beta countered by citing research indicating that market cap-weighted indices are actually poor proxies of the hypothetical market portfolio and tend to be highly exclusive and dynamic in respect of their constituents, thereby casting doubt on the notion of these indices being truly passive. Systematic factor indices, by definition, do not require discretionary decisions (beyond those made to maintain the universe of their parent cap-weighted indices). ERI Scientific Beta notes that neither systematic nor discretionary strategy management guarantees success but the performance of the former can be more readily analysed and understood. (...)"