Scientific Beta

IPE: "A risk of smart beta and associated “innovative” ideas, Amenc continues, can be to “ask an index to do too much” – for instance, wanting both to be concentrated in stocks that have strong exposure to multiple risk factors but at the same time diversify."

IPE October 2015

(...) Liam Kennedy discusses the role of research in institutional investment with Noël Amenc, who stepped down as director of the EDHEC-Risk Institute earlier this year. (...) A risk of smart beta and associated “innovative” ideas, Amenc continues, can be to “ask an index to do too much” – for instance, wanting both to be concentrated in stocks that have strong exposure to multiple risk factors but at the same time diversify. “Rather than wanting to have multi-factor indices with complex objectives that combine factor purity and diversification, long-only investing would do better to aim to have smart-factor indices that perform well because they are well diversified and exposed to the right factors and guarantee that the factor exposure target is respected through allocation between indices rather than through the application of black box multi-factor schemes to construct indices that are all things to all men which they cannot control.” (...)