Scientific Beta

Moneyweb: "“Smart beta strategies also improve diversification,” said Eric Shirbini, global product specialist at ERI Scientific Beta. “Market cap indices tend to be highly concentrated. Smart beta leads to less extreme risks in the short term, and, over the long term, higher risk adjusted returns.”"

Moneyweb 22/06/2018

"(...) The interest in smart beta is driven by its ability to provide exposure to market risk factors that offer the potential for long term out-performance at low cost. These risk factors are things like value, momentum and low volatility that have persistent records of delivering better risk-adjusted returns than a pure market cap-weighted index. “Smart beta strategies also improve diversification,” said Eric Shirbini, global product specialist at ERI Scientific Beta. “Market cap indices tend to be highly concentrated. Smart beta leads to less extreme risks in the short term, and, over the long term, higher risk adjusted returns.” (...) “Risk factors are not a free lunch,” noted Shirbini. “By definition they are associated with bearing risks. But these risks are rewarded over the long term.” The solution being proposed by many product providers is therefore to blend smart beta factors together in ‘multi-factor’ offerings. These use a number of different strategies such as value, momentum and quality in a single fund. “Factors priced by the market tend to be decoupled from each other,” explained Shirbini. “When one factor is performing poorly, another will compensate. In the long term they all produce good risk-adjusted return, but a multi factor index smooths performance over the short term. For retail investors a multi-factor index is therefore a more suitable investment product.” (...)"