Scientific Beta

Institutional Investor: "Eric Shirbini, global product specialist with ERI Scientific Beta in London, says there are only a limited number of factors with sufficient academic evidence to support their use in a portfolio."

Institutional Investor 28/05/2015

"(...) Eric Shirbini, global product specialist with ERI Scientific Beta in London, says there are only a limited number of factors with sufficient academic evidence to support their use in a portfolio. “The traditional factors are value, momentum, size and low-volatility,” says Shirbini, whose firm is part of the EDHEC-Risk Institute in Nice, France. Now, the evidence suggests two new risk factors: high profitability (companies with a high return on assets) and low investment (relative to the asset base), he adds. (...) Diversification is a key issue in constructing a factor strategy, says Shirbini. “Exposure to a single risk factor might work in your favor in some market conditions, but not in others,” he says. “A combination of factors can help smooth your portfolio performance over time, with potential benefits in all market conditions.” Shirbini’s firm calculates a wide range of “smart beta” indices to give investors a choice of factor strategies. “We believe in providing efficient access to a particular factor (through diversification) as well as by replicating a smart beta index using an asset manager with low execution cost,” he says. “The index construction process allows the investor to see exactly how the strategy has been constructed.” (...)"