Scientific Beta

IPE: "The smart-factor, multi-strategy approaches that we have developed, which consist, for a given factor tilt, of proposing a portfolio of five different weighting schemes, enable all of the non-rewarded risks associated with each of the weighting schemes to be well diversified."

IPE June 2014

(...) The smart-factor, multi-strategy approaches that we have developed, which consist, for a given factor tilt, of proposing a portfolio of five different weighting schemes, enable all of the non-rewarded risks associated with each of the weighting schemes to be well diversified. It is this quality of double diversification proposed and conceptualised as ‘diversification of the diversifiers’ that leads us to consider that smart-factor, multi-strategy indices are flagship indices representing elementary building blocks for risk allocation. This type of smart beta approach is, in our view, the new frontier for the construction of benchmarks that are representative of an efficient allocation to factors. The gains in terms of risk-adjusted returns of smart-factor indices compared with traditional factor index offerings are considerable. As such, on average over the long run (40 years) for US data, smart-factor, multi-strategy indices outperform cap-weighted factor indices by 68%. (...)