Scientific Beta

Pensions & Investments: "This is the choice that ERI Scientific Beta has made by providing a totally transparent index platform that allows a choice of factor tilts and weighting schemes to be combined in order to ensure sound diversification of both factor risks and specific risks."

Pensions & Investments 25/08/2016

"(...) In a recent opinion piece published on Pensions & Investments' website titled “Factor indexes: Choose with care,” John Chisholm, chief investment officer of Acadian Asset Management, sought to make a distinction between the “simplistic” “factor factories” of index providers and an “alpha modeling” approach to factor investing that would be representative of the “true” quant approach that only active managers can offer. One can understand that the success of new passive investment offerings worries active managers whose performances often fail to justify their high fees. One can also find that it is good business practice when faced with investors' increasing interest in factor investing, which actually gives access to betas beyond the broad market premium, to attempt to communicate and to position oneself in such a way as to preserve the search for alpha. It is nonetheless regrettable that this marketing strategy is based on approximations or assertions that do not have any real academic justification. (...) If factor providers want to add genuine value by relying on a set of more sophisticated quantitative methods, they should do so not in order to pick stocks, but to improve the risk diversification of the portfolio of stocks selected. Such diversification is the real guarantee of improving the risk-adjusted performance of factor investing. This is the choice that ERI Scientific Beta has made by providing a totally transparent index platform that allows a choice of factor tilts and weighting schemes to be combined in order to ensure sound diversification of both factor risks and specific risks. (...)"