Scientific Beta

Funds Europe: "What I would say, is that EDHEC has brought to market a suite of fully customisable smart beta indices with a consistent methodology, which is currently unique. This allows investors to choose the geography, the weighting and the risk tolerance to a benchmark or strategy that is most relevant to them."

Funds Europe 17/09/2014

"(…) FE: EDHEC-Risk has said that smart beta investors are taking considerable risk because index promoters do not document or explicitly control risks within their smart beta offerings. The academics called into question the robustness of index performance. How does the panel respond to this? (...) Philippides: If I’m interpreting it correctly, they’re looking at the traditional benchmarks and saying that there are inherent risks because of the biases in size or in other kinds of factors. I’m not in a position to comment on all the different kinds of index providers as there are diverse methodologies and a lot of research that goes into creating indices. What I would say, is that EDHEC has brought to market a suite of fully customisable smart beta indices with a consistent methodology, which is currently unique. This allows investors to choose the geography, the weighting and the risk tolerance to a benchmark or strategy that is most relevant to them. (...) Morgan: One of the things that EDHEC and other institutions have done is to say, well, actually, choose your factor exposures quite carefully and put your weighting scheme in, but also impose some sort of tracking error constraints on top of that. If you’re constraining the tracking errors, you’re not getting the maximum benefit possibly, but it’s a trade-off between outperformance and also being able to sleep easier at night with reduced tracking errors. (...)"