Scientific Beta

In this Practical Applications report, authored by Joanna Wrighton of Institutional Investor Journals, Noël Amenc, CEO of ERI Scientific Beta, Director of EDHEC-Risk Institute and Professor of Finance at EDHEC Business School, outlines the two-step approach explored in Choose Your Betas: Benchmarking Alternative Equity Index Strategies, which was published in the Fall 2012 issue of The Journal of Portfolio Management.

Alternative equity index strategies are enjoying widespread growth, but investors are struggling to analyse and understand them. The usual route of buying prepackaged index strategies blindly mixes decisions on separate steps of index construction, such as stock selection and diversification strategies. This exposes investors to additional risk factors—including value risk or liquidity risk—that they may not want to include in their portfolios. Portfolio managers should separate the stock selection decision, which tilts the portfolio toward the relevant characteristics such as value or growth, from the choice of a diversification scheme, which combines relevant stocks by taking into account how they interact within a portfolio.

This Practical Applications report consists of an easily comprehensible overview of the source article, a concise explanation of who will benefit from this research, and clear recommendations on how to apply the findings.

With the growing amount of literature available in the industry, researchers and portfolio managers face the daunting challenge of prioritising what they should read. Practical Applications, focusing on portfolio management, takes Institutional Investor Journals research articles a step further. These reports dissect the scholarly research to uncover actionable items that may not be easily extracted from a highly technical article. Practical Applications allows readers to keep up with current thought leadership in institutional investing strategies and enables them to target which articles to explore in further detail. Experienced financial journalists conduct exclusive interviews with the authors to obtain their views on how practitioners can utilise the research findings.

Please note that by accessing the report, Institutional Investor Journals may contact you at a future date.