Scientific Beta

Risk.net: "“The idea of factor investing is investors are exposed to greater losses in bad times and get compensated for that on average over the long term,” says Felix Goltz, who heads research at index provider ERI Scientific Beta. “Whether certain specific stocks are underpriced today is a completely different story.”

Risk.net 26/06/2017

"(...) Systematic value investing seems under siege, but factor investors are coming to its defence. Facts about Formulaic Value Investing, a recent paper co-authored by a Berkeley academic, says systematic value strategies – which often rely on simple accounting ratios – end up tilting blindly towards stocks in companies with puffed-up numbers. Yet industry players have brushed aside the concerns, saying the point of a factor-based approach is not to select underpriced stocks but to harvest a long-term risk premium. “The idea of factor investing is investors are exposed to greater losses in bad times and get compensated for that on average over the long term,” says Felix Goltz, who heads research at index provider ERI Scientific Beta. “Whether certain specific stocks are underpriced today is a completely different story.” (...) Goltz provides an example: “Everyone accepts there is an equity premium. But the equity premium will only show up in certain sub-periods. There are long periods, sometimes decades long, when the equity premium has been negative. That’s just the nature of a risk premium.” (...)"