Scientific Beta multi-factor indices post impressive three-year live track record

Scientific Beta Multi-Beta Multi-Strategy (MBMS) indices outperform cap-weighted indices over a three-year live period by over 2% on average

The Scientific Beta Multi-Beta Multi-Strategy Equal Weight (EW) and Equal Risk Contribution (ERC) flagship indices in all regions have posted positive live performance in comparison with their cap-weighted counterparts, with an average annualised outperformance of 2.13% over the period since the indices went live on December 20, 2013 to the end of December 2016.

Over the three-year live period, the 18 indices that correspond to the initial flagship offering (i.e. the Scientific Beta Multi-Beta Multi-Strategy EW and ERC indices for nine regions: Developed, Developed ex US, Developed ex UK, Developed Europe ex UK, US, UK, Eurozone, Asia-Pacific ex Japan and Japan) all outperformed, with an average annualised excess return of 2.13%%. The Developed World indices for the EW and ERC indices produced excess returns of 1.61% and 1.65% respectively.

In terms of risk, the average reduction in volatility for the 18 flagship Scientific Beta indices was 9.40%. On average, we were able to measure an improvement in risk-adjusted performance, expressed by the Sharpe ratio, of 41.35% compared to the broad cap-weighted index. The Developed World indices for the EW and ERC indices produced improvements in Sharpe ratios of 45.19% and 44.34% respectively.

The Scientific Beta Multi-Beta Multi-Strategy flagship offering aims to offer very robust performance of smart beta indices in relation to their cap-weighted counterparts in all market conditions.

This robustness is due to a double layer of factor and specific risk diversification, which enables each of the smart factor indices that make up the Multi-Beta Multi-Strategy benchmark to benefit over the long term not only from diversified exposure to the rewarded risk factors that they represent (Value, Size, Momentum, Low Volatility) but also a strong reduction in non-rewarded idiosyncratic volatility that is often very significant in traditional factor indices, which tend to be highly concentrated and poorly diversified.

As part of its policy of transferring know-how to the industry, EDHEC-Risk Institute has set up ERI Scientific Beta. ERI Scientific Beta is an original initiative which aims to favour the adoption of the latest advances in smart beta design and implementation by the whole investment industry. Its academic origin provides the foundation for its strategy: offer, in the best economic conditions possible, the smart beta solutions that are most proven scientifically with full transparency of both the methods and the associated risks.

ERI Scientific Beta, 1 George Street, #07-02, Singapore 049145. For further information, please contact: [email protected], Web: www.scientificbeta.com.

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