Scientific Beta

Financial Times: "Global X is launching a fund that combines four different factors in an index designed by the EDHEC-Risk Institute. The “Scientific Beta” indices combine four factors — value, size (small stocks do well), low volatility and momentum."

Financial Times 13/05/2015

"(...) Global X is launching a fund that combines four different factors in an index designed by the EDHEC-Risk Institute. The “Scientific Beta” indices combine four factors — value, size (small stocks do well), low volatility and momentum. It takes an underlying index, and constructs four different indices from it. For example, the value index includes only those that show up as cheapest. It then allocates weightings to each of these subindexes. Over time, some will do better than others, and so there is periodic rebalancing. This can happen once a quarter, but in historic back tests rarely happens more than once a year (to limit turnover). This rebalancing can be tweaked to take advantage of factors’ cyclicality. If EDHEC’s algorithm sees that the parent index is being driven by one particular factor — for example, value — then it will overweight value slightly. The result, if all works well, is a fund that keeps its nose slightly ahead of the market. (...)"