Scientific Beta

FT Adviser: "ERI Scientific Beta, which provides smart beta products, has said those smart beta funds that track equally-weighted indices may not always outperform, in spite of claims by proponents that they are all-weather investments."

FT Adviser 26/11/2014

"(...) Investors need to be warned that passive funds tracking specialised indices only work in certain markets and do not guarantee outperformance, a research paper has claimed. Some passive funds track an index that has been constructed based on a certain factor. This criterion can range from a focus on companies that pay dividends to a decision to hold an equal weighting of each stock within an index. Funds that follow such specialised indices have become known as ‘smart beta’ vehicles. ERI Scientific Beta, which provides smart beta products, has said those smart beta funds that track equally-weighted indices may not always outperform, in spite of claims by proponents that they are all-weather investments. (...) But ERI Scientific Beta, which is the index arm of the EDHEC-Risk Institute, has claimed there is no evidence such funds can consistently outperform. In a study entitled ‘Robustness of Smart Beta Strategies’, ERI Scientific Beta put forward the case for a diversified portfolio of smart beta factors. The study said there was “no positive and statistically significant long-term risk premium for a ‘value’ factor definition that relies on the approach termed ‘fundamental’, even though this approach is highly popular with investors and index providers”. (...)"