Scientific Beta

Top 1000 Funds: "The finance literature has firmly established a size factor exists – stocks with small market capitalisation outperform larger stocks over the long-term. The size factor has recently come under attack from smart beta providers, for a simple reason: its performance has lagged behind that of other factors. A common recommendation is to remove size from the factor menu, to give more weight to factors with better performance. This recommendation is in stark contradiction with the academic evidence on factor models of equity returns."

Top 1000 Funds 17/07/2019

Article by Mikheil Esakia, quantitative research analyst, Felix Goltz, research director, Ben Luyten, quantitative research analyst, and Marcel Sibbe, quantitative equity analyst, at Scientific Beta.

"(...) The finance literature has firmly established a size factor exists – stocks with small market capitalisation outperform larger stocks over the long-term. The size factor has recently come under attack from smart beta providers, for a simple reason: its performance has lagged behind that of other factors. A common recommendation is to remove size from the factor menu, to give more weight to factors with better performance. This recommendation is in stark contradiction with the academic evidence on factor models of equity returns. The academic literature sees the size factor as an important driver of return differences across equity portfolios. The commonly prescribed models thus include the size factor, as confirmed by the most recent research. In fact, removing the size factor deteriorates explanatory power more than removing any of the other standard factors. (...)"