Scientific Beta

ETF Strategy: "One of the toughest challenges facing smart beta investors today is in determining how these strategies will perform over changing market environments. A new research paper from Scientific Beta offers investors guidance on what to look for when assessing ETFs and indices based on these strategies."

ETF Strategy 16/07/2015

"(...) One of the toughest challenges facing smart beta investors today is in determining how these strategies will perform over changing market environments. A new research paper from Scientific Beta offers investors guidance on what to look for when assessing ETFs and indices based on these strategies. Proponents of smart beta strategies believe that their outperformance comes as either a reward for weathering factor risks or by exploiting the behavioural inefficiencies present in the market. Opponents often criticise providers of such products as marketeers of investment strategies based on cherry-picked historical data. The truth may be somewhere in between and as such it is imperative that investors perform in-depth analysis of the long-term performance of these strategies. According to Scientific Beta, their publication "highlights the importance of a limited choice of factors with simple definitions to avoid the temptations of factor mining or factor fishing, which are among the main causes of the lack of relative out-of-sample robustness of smart beta strategies that are based on factor exposures. It also underlines the importance of allocating between smart factors that have decorrelated excess returns with respect to cap-weighted indices in order to favour the absolute robustness of the smart beta strategies implemented." (...)"