Scientific Beta

IPE: "Mercer also stated in its report: "For investors facing few governance or fee constraints, we believe that truly unconstrained active strategies offer the potential to capture factor returns in an intelligent way, while also benefiting from market awareness and idiosyncratic alpha, potentially improving returns, controlling risk and enhancing diversification." In response, Ducoulombier and Amenc said: "Everyone is entitled to their beliefs, but investors would benefit if such beliefs were solidly grounded in scientific research, i.e. evidence-based as opposed to faith-based. "Contrary to what is assumed here, it is perfectly possible to design market-aware dynamic factor strategies that remain fully systematic and highly diversified; these strategies even exist in the long/short space with some offering zero exposure to broad equity market risk.""

IPE 11/01/2018

"(...) ERI Scientific Beta has strongly criticised a November 2017 Mercer report on factor investing, calling it an "all-out attack against evidence-based investment". The consultancy's report was "representative of undocumented opinions" and therefore liable to misinform investors, according to the smart beta indices and analytics provider. (...) According to ERI Scientific Beta, the consultant's report had correctly underlined the potential for smart beta and factor strategies to add value, and the need for proper due diligence on these strategies. But, it said, Mercer then recommended discretionary solutions "by argument of authority or by peddling (debunked) clichés on systematic strategies". (...) Mercer also stated in its report: "For investors facing few governance or fee constraints, we believe that truly unconstrained active strategies offer the potential to capture factor returns in an intelligent way, while also benefiting from market awareness and idiosyncratic alpha, potentially improving returns, controlling risk and enhancing diversification." In response, Ducoulombier and Amenc said: "Everyone is entitled to their beliefs, but investors would benefit if such beliefs were solidly grounded in scientific research, i.e. evidence-based as opposed to faith-based. "Contrary to what is assumed here, it is perfectly possible to design market-aware dynamic factor strategies that remain fully systematic and highly diversified; these strategies even exist in the long/short space with some offering zero exposure to broad equity market risk." (...)"