Scientific Beta

Top 1000 Funds: "Defensive equity investment strategies are nothing new, but a key issue with many is that defensive does not necessarily mean low volatility. Scientific Beta looks at a strategy to target both goals, using robust low volatility controls to create a new defensive index for the volatility-averse investor."

Top 1000 Funds 03/04/2020

Article by Daniel Aguet, head of indices at Scientific Beta, Noël Amenc, chief executive at Scientific Beta and Associate Dean for business development at EDHEC Business School, and Felix Goltz, research director at Scientific Beta.

"(...) Traditional defensive strategies have been popular for many decades. In addition to providing relative protection in bear markets, they benefit from the positive long-term premia associated with the low volatility factor. Unfortunately, we can observe that the popular low volatility strategies’ strong tilt towards value is often associated with negative exposures to the other rewarded factors, which deprives these strategies of the potential for long-term risk-adjusted performance. To respond to this shortcoming, it is possible to apply a high factor intensity filter to a defensive strategy, which removes the highly negative exposures to other rewarded factors. This type of approach harvests the low volatility factor while maintaining positive exposures to other rewarded risk factors. (...)"