Assets replicating Scientific Beta’s multi-factor indices reach USD 25bn

Scientific Beta sees its assets under replication grow by over 50% in 6 months

Written on 22 February 2018.

Scientific Beta, the smart beta index provider offshoot of EDHEC-Risk Institute, has announced that assets tracking its smart beta indices reached USD 25bn at December 31, 2017. Compared to June 30, 2017, this amount of assets under replication represents six-month growth of 56%.

This growth is due not only to a market effect, but also to positive net inflows that are rewarding the good live track record of the Scientific Beta indices. The Scientific Beta Multi-Beta Multi-Strategy Four-Factor EW indices, which were the first multi-factor indices to be offered by ERI Scientific Beta, show an average live annualised outperformance across all Scientific Beta Developed regions of 2.11% over their four-year live track record and an improvement in the Sharpe Ratio of 46.16% compared to their cap-weighted benchmark[1].

In 2017, Scientific Beta also launched a new risk control option for its existing High-Factor-Exposure Multi-Beta Multi-Strategy Six-Factor Equal-Weight indices and Multi-Beta Multi-Strategy Diversified Max Factor Exposure solutions. These strategies, which have strong factor intensity and are defensive, are intended to provide a strong reduction in volatility and a highly significant increase in Sharpe ratio over the long term. Their defensive nature does not lead them to outperform in extreme bull markets like in 2017, especially in the US market. To offer indices with better conditional performance in bull and bear markets on the basis of these same strategies, Scientific Beta implemented a market-beta-adjustment option for these strategies with the market beta. This feature adds to the existing risk control options and is applied to the flagship indices using either leverage with borrowed cash, or by combining a swap or a future overlay with the cap-weighted index, to achieve a market beta of 1.

The SciBeta Developed High Factor Exposure Multi-Beta Multi-Strategy 6-Factor EW Market Beta Adjusted (Leverage) index posted relative returns of 4.82% compared to its reference cap-weighted index for the year 2017.

Commenting on these inflows, Professor Noël Amenc, CEO of Scientific Beta, stated, “These inflows are a reward for the choice that we made not to change the construction approach for our smart beta indices. Whatever the versions of the indices, they remain based on the double diversification of factor and specific risks, and do not sacrifice the latter in favour of a concentrated portfolio optimised in-sample. Our risk control choices, which sometimes reduce the factor exposures, correspond to a genuine desire not to let the index provider take implicit fiduciary decisions in place of the investor, as is unfortunately sometimes the case. Smart beta benchmarks are ultimately not a question of short-term return, but of long-term risk management. It is this dimension that we will continue to develop with the partners and clients who have been placing their trust in us for five years.


[1] The average live outperformance and improvement in Sharpe Ratio across all Scientific Beta developed regions of Scientific Beta Multi-Beta Multi-Strategy Equal-Weight indices is 2.11% for the outperformance and 46.16% for the improvement in Sharpe Ratio. This live analysis is based on daily total returns in the period from December 20, 2013 (live date) to December 31, 2017 for all diversified multi-strategy indices that have more than 3 years of track record for all available developed world regions - USA, Eurozone, UK, Developed Europe, Developed Europe ex UK, Japan, Developed Asia Pacific ex Japan, Developed ex UK, Developed ex USA and Developed. The benchmark used is a cap-weighted portfolio of all stocks in the respective Scientific Beta universes.

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