Active Creates Hidden Risks In Capacity

"(...) An argument that active management is needed to avoid capacity issues in factor investing does not hold for a number of reasons, says a Scientific Beta study. ‘Do We Need Active Manag ...

Cited As:

Noël Amenc

CEO - ERI Scientific Beta

"(...) An argument that active management is needed to avoid capacity issues in factor investing does not hold for a number of reasons, says a Scientific Beta study. ‘Do We Need Active Management to Tackle Capacity Issues in Factor Investing? Exposing Flaws in the Analysis of Blitz and Marchesini (2019)’ shows that systematic rules allow investability to be improved with full transparency. Active management is not only unnecessary; it also creates hidden risks for investors due to a lack of transparency. Dr Noël Amenc, CEO of Scientific Beta, says, “Although the criticism in the Blitz-Marchesini paper builds on logical fallacies and is not backed by evidence, it does align with intuitive claims about the dangers of indexing. It may be convenient to rely on such intuitive arguments – they correspond to widely held beliefs – but answering questions about investability requires careful analysis of the facts. Index providers and replicators need to offer transparency and evidence to allow for factual analysis. In their due diligence, index investors need to address how the index provider achieves investability and how the passive manager adds value when replicating the index.” (...)"

Type: Press article
Date: le 05/12/2019
Research Cluster : Finance
Source : Benefits and Pensions Monitor

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