Scientific Beta

Institutional Investor: "Now Scientific Beta has come out with a defense of the size factor, with the smart beta index firm’s researchers arguing that multi-factor portfolios would perform worse if the size factor were excluded. “On the one hand, the standalone outperformance of small stocks over large stocks is weak and may even disappear when taking exposure to the market factor into account,” Scientific Beta researchers Felix Goltz and Ben Luyten wrote in a note this month. “On the other hand, further analysis consistently shows that a size effect is found when controlling for other factors.”

Institutional Investor 13/10/2020

"(...) Now Scientific Beta has come out with a defense of the size factor, with the smart beta index firm’s researchers arguing that multi-factor portfolios would perform worse if the size factor were excluded. “On the one hand, the standalone outperformance of small stocks over large stocks is weak and may even disappear when taking exposure to the market factor into account,” Scientific Beta researchers Felix Goltz and Ben Luyten wrote in a note this month. “On the other hand, further analysis consistently shows that a size effect is found when controlling for other factors.” (...) In the new Scientific Beta note, Goltz and Luyten take issue with the AQR analysis, arguing that factors should be assessed from a total-portfolio perspective. Acknowledging that the size factor may not produce “stellar returns” by itself, they argued that it is still a “valuable addition” to factor-weighted portfolios. (...) “Size is a strong diversifier of other traditional factors and consequently adds value to a multi-factor portfolio,” Goltz and Luyten wrote. “Analysis that fails to take exposures to factors such as momentum or profitability into account is of little practical relevance to investors.” (...)"