Scientific Beta
The 2024 edition of Scientific Beta's flagship European conference will be changing venues and taking place in London on 26 & 27 November, 2024 to present our latest research on systematic equity investing, adding value through machine learning, sustainability integration and risk management.
New Frontiers in Systematic Equity Investing: Adding Value through Machine Learning, Sustainability Integration and Risk Management
Overview
For the 2024 edition of our flagship European conference, Scientific Beta Days Europe will be changing venues and taking place in London.
Scientific Beta Days Europe 2024 will take place in person and will present Scientific Beta’s latest research on systematic equity investing. The conference will run over two days and will focus on value creation through machine learning, sustainability integration and risk management. The two-day format will include plenary sessions and case studies with practical applications from Scientific Beta as well as discussions with senior investment professionals providing industry insight into different topics.
Sessions will address the importance of economic risk in portfolio construction, explore potential solutions to address concentration risk in the design of factor strategies, and consider the limitations of standard machine learning models for investment decisions and how these tools can be tailored to improve investment outcomes.
Further sessions will look at "green window dressing", forward-looking climate data and carbon emissions and how to exploit the insights of financial market participants to improve ESG data. Like in 2023, the EDHEC-Risk Climate Impact Institute has been invited to present its latest research backing a combined probabilistic approach to equity valuation for transition and physical risk and the importance of state-dependent discounting.
Case studies will explore how to create enhanced equity solutions for investors with limited deviation from the cap-weighted index, how to assess both a company’s climate change risks and opportunities, and look at the pitfalls of implementing Quality investment strategies, proposing a more robust approach to capturing the benefits of Quality investing. A final case study will look at advanced equity factor investing, outlining innovative strategies for robust tracking error management.
Day 1
- Improving the Efficiency of Factor Strategies
- The Cost of Mitigating Inflation Risk in Equity Portfolios
- The Alchemy of ESG Scores: Can we Turn Lead into Gold?
- Case Study – Enhancing Equity Solutions in a Risk-Controlled and Transparent Process
- Case Study – The Two Sides of the Climate Coin
- Machine Learning in Factor Investing: An Evolution or Revolution?
Day 2
- The Impact of Climate Change on Equity Valuation
- Green Window Dressing
- Impact of Concentration Risk on Factor Strategies
- Case Study – A Robust Quality Strategy: A Smooth Ride through Turbulence
- Case Study – Managing Tracking Error of Factor Strategies
- Back to the Future: Backward vs Forward Looking ESG metrics
Programme
Day 1: 26 November, 2024
09:15am-9:45am: Breakfast & Registration
- 9:45am-10:00am: Introduction
Master of Ceremonies: Marianne Piquerel, Senior Business Development & Sales Manager, Scientific Beta - 10:00am-11:00am: Improving the Efficiency of Factor Strategies (Plenary Session)
Speaker: Daniel Aguet, Deputy CEO and Index Director, Scientific Beta
Panellists: Eirik Hauge, Senior Portfolio Manager, Fellesordningen for AFP; Lachlan Smith, Manager, Research, Phoenix Group Holdings
This session investigates the importance of economic risks in portfolio construction, their impact on the performance and risk of factor strategies and how investors can incorporate them into a unique risk management framework to mitigate their effects and improve the efficiency of factor strategies.
• Economic risks: what are they and how can they be measured?
• Why do economic factors matter for portfolio construction?
• How can economic risks be mitigated in factor strategies and what are the benefits for investors? - 11:00am-11:45am: What is the Cost of Mitigating Inflation Risk in Equity Portfolios? (Plenary Session)
Speaker: Ben Luyten, Principal Quantitative Research Analyst, Scientific Beta
Investors frequently pursue strategies to tilt to inflation friendly stocks, sectors or styles to reduce inflation risk in their equity portfolio. Does such risk reduction come at the cost of lower returns? We analyse exposures to a multitude of inflation metrics to answer this question. Contrary to claims in the literature, we show that there is no effect on average returns when equity investors reduce inflation risk.
• Accounting for the multitude of inflation metrics: what do we learn from core, energy, food, durables, non-durables, and services inflation?
• The challenge of reliable measurement of risk exposures
• Which economic conditions could increase the cost of reducing inflation risk?
11:45am-12:15pm: Morning Break
- 12:15pm-1:00pm: The Alchemy of ESG Scores: Can we Turn Lead into Gold? (Plenary Session)
Speaker: Erik Christiansen, Head of Investment Solutions, Scientific Beta
Panellist: Silvie Berrut, Portfolio Manager, European Patent Office; Bernd Spendig, Head of ESG - Client Risk Management, Unicredit
ESG scores are notoriously unreliable, hence the quest to develop ESG metrics that are less subjective. In this session we explore whether we can exploit the insights of financial market participants, i.e. the wisdom of crowds, to improve the ESG data at our disposal.
• How can we extract relevant ESG information from market prices?
• Can we make SDG scores such as biodiversity scores more reliable?
• Can we produce relevant estimates of a company’s green opportunities when Green Revenues data is unavailable?
1:00pm-2:00pm: Lunch Break
- 2:00pm-2:30pm: Case Study – Enhancing Equity Solutions in a Risk-Controlled and Transparent Process (Plenary Session)
Speaker: Felix Goltz, PhD, Research Director, Scientific Beta
This presentation will explore how to create enhanced equity solutions for investors with limited deviation from the cap-weighted index. The discussion will focus on integrating sustainability features, improving risk-adjusted performance, and managing deviations from the market index.
• Exploring verifiable and forward-looking sustainability metrics
• Generating performance uplift from externally validated financial factors, supported by academic evidence
• Managing the risk of deviating from a reference index
- 2:30pm-3:15pm: Case Study – The Two Sides of the Climate Coin (Plenary Session)
Speaker: Erik Christiansen, Head of Investment Solutions, Scientific Beta
The energy transition requires both the phasing out of fossil fuels and the development of substitutes, i.e. massive investment in low-carbon energy. While investors seek to reduce their exposure to the risks of the climate transition, they should also seek to invest in the opportunities it presents.
• How to assess both a company’s climate transition risks and its opportunities?
• How to design a portfolio that deals with both sides of the coin, while limiting market-relative risk?
• Can these climate targets be integrated in a factor portfolio?
3:15pm-3:45pm: Afternoon Break
- 3.45pm-4.45pm: Machine Learning in Factor Investing: An Evolution or Revolution? (Plenary Session)
Speaker: Felix Goltz, Research Director, Scientific Beta
This session builds on recent advances in factor investing, which use tools from machine learning to identify risk premia. It will address the limitations of standard machine learning models for investment decisions and how to tailor these tools to improve investment outcomes.
• Why off-the-shelf models for Artificial Intelligence and Machine Learning are not suitable for investment decision making
• How can we adapt machine learning tools to account for investment principles?
• Looking inside the black box: what is the value of different information sets for return prediction?
• Empirical performance of Machine Learning factors under real-world investment constraints - 4.45pm-5.30pm: Round Table with Investors
Panellists: Jiwei Dong, Head of Asset allocation, NEST Corporation; Felix Goltz, Research Director, Scientific Beta; Guillaume Rabault, Global CIO Quantitative Strategies, ETF and Indexing, HSBC Global Asset Management; Lorraine Sereyjol-Garros, Head of Sales, ETF & Index Solutions, BNP Paribas
Moderator: Marianne Piquerel, Senior Business Development & Sales, Manager, Scientific Beta
5:30pm-6:30pm: Cocktail
Day 2: 27 November, 2024
09:00am-09:45am: Breakfast & Registration
- 9:45am-10:00am: Introduction
Master of Ceremonies: Ilan Heimann, Head of Business Development UK & Nordics, Scientific Beta - 10:00am-10:45am: The Impact of Climate Change on Equity Valuation (Plenary Session)
Speaker: Riccardo Rebonato, Scientific Director, EDHEC-Risk Climate Impact Institute
Traditional discounted cash flow models often disregard state dependence by applying the same discount rate/factor to all cashflows occurring at a given date. But can this approach effectively value climate-sensitive securities? New research by EDHEC-Risk Climate Impact Institute, with support from Scientific Beta, shows that this is not the case, and that the standard valuation tools are not fit for purpose.
• A combined probabilistic approach to equity valuation for transition and physical risk
• The importance of state-dependent discounting
• A Minsky moment or death by a thousand cuts? - 10:45am-11:30am: Green Window Dressing (Plenary Session)
Speaker: Mirco Rubin, Associate Professor, Econometrics, EDHEC Business School
• Engaging in “green window dressing”: moving in and out of ESG stocks around disclosure
• ESG ratings and effects by funds’ trades around disclosure
• Effects on stock prices
11:30am-12:00pm: Morning Break
- 12:00pm-12:45pm: Impact of Concentration on Factor Strategies (Plenary Session)
Speaker: Daniel Aguet, Deputy CEO and Index Director, Scientific Beta
Panellists: Michael Ashworth, Investment Manager, Greater Manchester Pension Fund; Boriana lordanova, Managing Director, Index research - Systemic & Index Investments, UBS Asset Management; Alexander Neszvecsko, Portfolio Manager, European Patent Office
This session sheds light on concentration risk and its impact on the two pillars of diversified factor strategies, namely rewarded factors and diversification. It will address potential solutions to address concentration risk in the design of factor strategies.
• What drives concentration risk?
• Impact of concentration risk on the performance of rewarded factors
• Impact of concentration risk on diversified portfolios
• Can we design factor strategies to overcome concentration risk?
12:45pm-1:45pm: Lunch Break
- 1:45pm-2:15pm: Case Study – A Robust Quality Strategy: Smooth Ride through Turbulence (Plenary Session)
Speaker: Ben Luyten, Principal Quantitative Research Analyst, Scientific Beta
While Quality investment strategies are popular among investment practitioners, implementations may suffer from significant pitfalls. This session highlights some of these risks, and proposes a more robust approach to capture the benefits of Quality investing.
• How is defined Quality?
• What are the pitfalls of common Quality strategies?
• Towards a smooth performance across market cycles - 2:15pm-2:45pm: Case Study – Managing Tracking Error of Factor Strategies (Plenary Session)
Speaker: Felix Goltz, PhD, Research Director, Scientific Beta
This session explores advanced equity factor investing, focusing on the importance of tracking error constraints, the limitations of traditional optimisation methods, and innovative strategies for robust tracking error management.
• When should investors consider tracking error constraints?
• Shortcomings of naïve optimisation approaches
• Introducing a method for forward-looking control of tracking error
2:45pm-3:15pm: Afternoon Break
- 3:15pm-4:00pm: Back to the Future: Backward vs Forward Looking ESG metrics (Plenary Session)
Speaker: Erik Christiansen, Head of Investment Solutions, Scientific Beta
Panellists: Michal Bartek, Senior Lead Listed Equity, Principles for Responsible Investment (PRI); Alan Duffy, Head of Sustainable Integration & Solutions, Irish Life Investment Managers
A frequent criticism of some ESG data such as carbon emissions is that they are “backward-looking”, on the other hand “forward-looking” data is seen as a holy grail.
• Should we just forgive past sins?
• Does the future really matter more than the present?
• Is the past a better guide to the future than crystal balls?
Registration
The conference is reserved for asset owners (including pension schemes, charities, endowments, foundations, insurance companies, single family offices and financial executives from non-financial companies), consultants and investment advisors.
To register, please visit the dedicated registration page.
Venue
Convene
Fenchurch Street
London
United Kingdom
About Scientific Beta
Scientific Beta aims to encourage the entire investment industry to adopt the latest advances in smart factor and ESG/Climate index design and implementation. Established in December 2012 by EDHEC-Risk Institute, one of the top academic institutions in the field of fundamental and applied research for the investment industry, as part of its mission to transfer academic know-how to the financial industry, Scientific Beta shares the same concern for scientific rigour and veracity, which it applies to all the services that it provides to investors and asset managers. We offer the smart factor and ESG/Climate solutions that are most proven scientifically, with full transparency of both methods and associated risks.
On January 31, 2020, Singapore Exchange (SGX) acquired a majority stake in Scientific Beta. SGX is maintaining the strong collaboration with EDHEC Business School, and principles of independent, empirical-based academic research, that have benefited Scientific Beta’s development to date.
Scientific Beta has developed two types of expertise over the years corresponding to two major concerns for investors:
- Expertise in the area of Smart Beta, and more particularly factor investing
- Expertise in the area of ESG, and particularly Climate investing
To date, Scientific Beta is offering two major types of climates objectives:
Since 2015, offerings with financial objectives respecting ESG and Carbon constraints. These offerings correspond to the application of exclusion filters, the design of which allows the financial characteristics of the index to be conserved. This involves reconciling financial objectives and compliance with ESG norms and climate obligations. As such, the Core ESG, Extended ESG and Low Carbon filters can be integrated into smart beta or cap-weighted offerings in line with the financial objectives targeted by the investor.
Since 2021, Scientific Beta has been offering indices with pure climate objectives (Climate Impact Consistent Indices) that allow climate exclusions and weightings to be combined in order to translate companies’ climate alignment engagement into portfolio decisions.
Since it was acquired by SGX in January 2020, Scientific Beta has accelerated its investments in the area of Climate Investing as part of the SGX Sustainable Exchange strategy, which is mobilising an investment of SGD 20 million. In addition, EDHEC and Scientific Beta have set up a EUR 1 million/year ESG Research Chair at EDHEC Business School.
With a concern to provide worldwide client servicing, Scientific Beta is present in Boston, London, Nice, Singapore and Tokyo. As of July 31, 2022, the Scientific Beta indices corresponded to USD 52.47bn in assets under replication. Scientific Beta has a dedicated team of 55 people who cover not only client support from Nice, Singapore and Boston, but also the development, production and promotion of its index offering. Scientific Beta signed the United Nations-supported Principles for Responsible Investment (PRI) on September 27, 2016. Scientific Beta became an associate member of the Institutional Investor Group on Climate Change (IIGCC) on April 9, 2021, and a member of the Investor Group on Climate Change (IGCC) on November 28, 2022.
Today, Scientific Beta is devoting more than 40% of its R&D investment to Climate Investing and more than 45% of its assets under replication refer to indices with an ESG or Climate flavour. As a complement to its own research, Scientific Beta supports an important research initiative developed by EDHEC on ESG and climate investing and cooperates with V.E and ISS ESG for the construction of its ESG and climate indices.
On November 27, 2018, Scientific Beta was presented with the Risk Award for Indexing Firm of the Year 2019 by the prestigious professional publication Risk Magazine. On October 31, 2019, Scientific Beta received the Professional Pensions Investment Award for “Equity Factor Index Provider of the Year 2019.” On February 2, 2022, Scientific Beta was named ‘Best Specialist ESG Index Provider’ at the ESG Investing Awards 2022.
Contact
Joanne Finlay
E-mail: scientificbetadays@scientificbeta.com