Scientific Beta

Professional Wealth Management: "Amundi’s new launch is based on an EDHEC Risk Scientific Beta index which combines four risk factors – momentum, size, volatility and value. “ERI Scientific Beta is a first mover but other major index providers are looking at the same approach,” says Mr Guignard. “Strong research capabilities are required for this and when it comes to risk factors other than minimum volatility, not many providers are offering a combination of risk factors and weighting schemes.”"

Professional Wealth Management 09/12/2014

"(...) ETFs continue to enjoy record inflows with investors using them for both short-term trading and long-term positions, while providers are offering ever more innovative products. (...) Amundi’s new launch is based on an EDHEC Risk Scientific Beta index which combines four risk factors – momentum, size, volatility and value. “ERI Scientific Beta is a first mover but other major index providers are looking at the same approach,” says Mr Guignard. “Strong research capabilities are required for this and when it comes to risk factors other than minimum volatility, not many providers are offering a combination of risk factors and weighting schemes.” Using fundamental weightings in place of market cap ones can improve a portfolio’s Sharpe ratio, according to EDHEC researchers who back-tested the performance of multi-strategy equity indices using a combination of value, momentum, size, and low volatility factors over a range of geographies over 10 years. The Sharpe ratio for the smart beta indices was 0.47, compared to a traditionally-weighted portfolio reading of 0.34, which was partly a result of lower volatility. The most marked difference occurred in developed Asia-Pacific markets ex-Japan where Sharpe ratios were up 0.21 from the traditional benchmark’s reading of 0.43. (...)"