Scientific Beta

Fund Strategy: "Research from the EDHEC Risk Institute and ERI Scientific Beta looked at the impact of the recent falls in the Volkswagen stock and how it affected portfolios. The research shows that in the short term multi-factor indices should be more diversified."

Fund Strategy 04/11/2015

"(...) Many smart beta strategies are too concentrated to specific factor exposures, which is harming returns, a new paper has found. Research from the EDHEC Risk Institute and ERI Scientific Beta looked at the impact of the recent falls in the Volkswagen stock and how it affected portfolios. The research shows that in the short term multi-factor indices should be more diversified. However, it found that managers want to maximise factor exposures and so ran more concentrated portfolios. “Even though the excessive concentration of cap-weighted indices was one of the motivations for creating smart beta indices, solely taking the factor dimension into account ultimately leads to the indices exposing investors to considerable specific risks,” says the research. (...)"