Scientific Beta

Financial News: "EDHEC canvassed opinions from 180 ETF buyers managing a collective €3.1 trillion, finding that interest in smart beta ETFs is keen, with 37% of the investors already using them and 33% considering them."

Financial News 14/03/2016

"(...) The move comes amid wider concerns over transparency in the ETF market. The growth of "smart beta" ETFs, ones based on alternatives to traditional indices, could be hampered by index providers' unwillingness to share information with investors, according to the French business school EDHEC. EDHEC canvassed opinions from 180 ETF buyers managing a collective €3.1 trillion, finding that interest in smart beta ETFs is keen, with 37% of the investors already using them and 33% considering them. But investors are also struggling to get the information and disclosure they need to understand the products, the EDHEC survey found. Felix Goltz, head of applied research at the EDHEC-Risk Institute, said index providers – who typically license the smart beta indexes to fund managers so they can create investable ETFs – seemed particularly reluctant to share information relating to how the indexes are created. He said: "New indexes are typically back-tested to make sure they perform, before the ETF is created. A very simple thing would be to get access to the portfolio holdings during the back-test period. If you are going to analyse the strategy, you have to understand the back-test. Goltz said: "There is a risk that investors might shy away. There is also the risk that they will invest without understanding properly what they are investing in." (...)"