Scientific Beta

Risk.net: "Annualised extreme tracking errors relative to a cap-weighted index can range from between 4% to 18% for different smart beta strategies, thinks Eric Shirbini, London-based global product specialist at EDHEC Risk Institute's Scientific Beta index provider."

Risk.net 22/04/2016

"(...) Smart beta investors might be underestimating tracking errors and maximum relative drawdown in their indexes when compared with the broader market, according to industry experts. Annualised extreme tracking errors relative to a cap-weighted index can range from between 4% to 18% for different smart beta strategies, thinks Eric Shirbini, London-based global product specialist at EDHEC Risk Institute's Scientific Beta index provider. "These are massive risks that people are taking and they are not well documented when people replace their active managers with these smart beta strategies," said Shirbini, speaking at a recent EDHEC Risk conference. He calculates that one-year rolling tracking errors at the ninety-fifth percentile ranged from 3.9% for one quality-focused equity index to 18% for one maximum diversification index, in relation to a cap-weighted index of 2,000 developed-world equities over 10 years. (...)"