Scientific Beta

Morningstar: "As the debate rages on between proponents of traditional market-cap weighted indexing and those that espouse alternative weighting schemes, the EDHEC-Risk Institute is venturing further into the fray as it prepares to launch a series of indices that seek the advantages of existing smart beta methodologies while managing some of their inherent risks."

Morningstar 27/03/2013

"(...) As the debate rages on between proponents of traditional market-cap weighted indexing and those that espouse alternative weighting schemes, the EDHEC-Risk Institute is venturing further into the fray as it prepares to launch a series of indices that seek the advantages of existing smart beta methodologies while managing some of their inherent risks. (...) As part of what it is calling “Smart Beta 2.0,” EDHEC is trying to refocus the smart beta discussion onto these types of risk. For example, if a certain fundamental indexing strategy displays a bias towards small cap value stocks, EDHEC essentially asks the question of what would happen if we tweaked that methodology by starting with a universe of only large, growth companies and then running the same model. If other smart beta strategies tended to overweight certain industries, similar tweaks could reduce the tracking error of such strategies by starting with sector neutrality and only then letting the model select stocks to fill each industry bucket. The idea itself is not entirely new; other smart beta index providers may already accomplish these things to some extent through an initial filtering process. Moreover, some investors may like having a small cap, value bias. But EDHEC’s point is that if you’re an institutional investor you should be aware of those risk factors and be able to choose which ones you want to take. (...) EDHEC intends to offer full transparency on its indices’ methodologies and daily constituents, which means that in theory, an investor or fund provider could replicate them on their own, without licensing EDHEC. (...)"