Smart Beta Institute Warns Against Smart Beta

"(...) The explosive success of smart beta products has one of the sector’s head cheerleaders urging investors to undertake a little more conversation, and a little less action. Smart beta is bas ...

Cited As:

Eric Shirbini

ERI Scientific Beta

"(...) The explosive success of smart beta products has one of the sector’s head cheerleaders urging investors to undertake a little more conversation, and a little less action. Smart beta is based on decades of academic research into the sources of stock and bond returns, and purveyors aim to soup up index returns by ranking companies not only by size and value, but also by other properties — or factors — like quality, profitability, volatility, and dividend payouts. Amid factor mania, veteran quant Eric Shirbini warned in an ERI Scientific Beta white paper released this week that second-order risks and exposures aren’t being sufficiently accounted for by investors or disclosed by providers. “By making an explicit choice over which factors to invest in, the asset owner now also takes on the fiduciary responsibility of their investment choices, which in the past had been delegated to the asset manager," according to Shirbini, the global research and investment solutions director for ERI Scientific Beta, a European smart-beta index provider. “Just like monitoring the style drift of active managers, investors need to monitor the risk dynamics of factor strategies.” In particular, he pointed to three main categories of implicit risk to be monitored and managed: market beta, macroeconomic, and sector/geographical. (...)" 

Type: Press article
Date: le 28/03/2018
Source : Institutional Investor

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