Scientific Beta

Investment Europe: "Eric Shirbini, global product specialist at ERI Scientific Beta, points to ongoing transparency as crucial to the continued adoption of SB indices. "Full transparency is more important for smart beta indices when compared to traditional capweighted indices that have a long live history and whose performance does not differ by much across index providers for the same market or segment"."

Investment Europe 27/02/2014

"(...) Eric Shirbini, global product specialist at ERI Scientific Beta, points to ongoing transparency as crucial to the continued adoption of SB indices. "Full transparency is more important for smart beta indices when compared to traditional capweighted indices that have a long live history and whose performance does not differ by much across index providers for the same market or segment." He adds: "As these indices expose investors to a different set of risks than traditional capweighted indices investors need full transparency to be able to carry out their due diligence. Without full transparency, the growth of this important and significant market will be hampered." Shirbini divides transparency up into three areas: data, rules and analytics. "Proper due diligence will require knowing the weights and the composition of the index at each rebalancing date in order to be able to assess the level of concentration within each index, sector risk, country risk, capacity, liquidity and turnover. "Turnover, liquidity and capacity for these indices are particularly important when taking implementation considerations and cost into account as smart beta indices have higher turnover and a limited capacity when compared to cap-weighted indices." "Secondly, full disclosure of the ground rules and calculation methodology is important so that the simulated and live indices can be replicated and audited independently from the index provider. "Thirdly, analytics are important to measure and control for the absolute and relative risks of these indices and to better understand how these indices perform in different market regimes such as in bull or bear market conditions." For investors in equal weighted indices, there is also liquidity risk to consider, Shirbini says, one reason why ERI Scientific Beta has created its own series of High Liquidity indices. (...)"