Scientific Beta

Institutional Investor: "Speaking at the EDHEC Risk Institute's Smart Beta Day in London, Dr. Eric Shirbini, a director at ERI Scientific Beta, warned that use of traditional defensive portfolio modelling could risk sub-standard returns. Shirbini argued that traditional defensive strategies are heavily biased to the low-volatility factor by their very construction, and therefore miss out on rewards from other factor tilts when market sentiment shifts."

Institutional Investor 21/03/2017

"(...) Beware low-volatility stock allocation or face potentially significant underperformance in the years ahead, experts have warned. The warning comes amid increasing concerns that traditional defensive equity strategies – which surged in popularity after the financial crisis – are vulnerable to underappreciated risks from monetary policy, interest rates, factor tilts, and geopolitics. Speaking at the EDHEC Risk Institute's Smart Beta Day in London, Dr. Eric Shirbini, a director at ERI Scientific Beta, warned that use of traditional defensive portfolio modelling could risk sub-standard returns. Shirbini argued that traditional defensive strategies are heavily biased to the low-volatility factor by their very construction, and therefore miss out on rewards from other factor tilts when market sentiment shifts. "Investing in low-volatility stocks is great when there is a downturn in the market as you tend to outperform, but when the market goes up, these low volatility strategies tend to lag behind," he said. "Low risk, low-volatility strategies tend to be much more sensitive to changes in interest rates... you end up taking a lot of country risk, which is not well-rewarded – and these strategies can be very concentrated in certain sectors as well." Shirbini's warning follows recent cautionary notes from asset managers that sophisticated investors need to look again at how they calculate risk. (...)"