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EDHEC-Risk Information

EDHEC-Risk in the Press

Articles published in 2014

[2017] [2016] [2015] 2014 [2013] [2012] [2011] [2010] [2009] [2008] [2007] [2006] [2005] [2004] [2003]


December 2014

  • Funds Europe (December 2014)
    EDHEC: Pulling the trigger
    "(…) Given turnover and capacity problems, Noël Amenc, Felix Goltz and Nicolas Gonzalez of the EDHEC-Risk Institute assess how easy it is to invest in smart beta equity indices. (...) The arrival of smart beta equity indices has raised a major question on their investability: at what cost will investors be able to trade the index constituents in the same proportions as the underlying strategy? In fact, departing from the traditional cap-weighting investment scheme leads to risks that are sizable and that vary significantly. These include common exposures to systematic risk factors such as size and liquidity. Smart beta indices exhibit higher levels of turnover than their cap-weighted counterparts. Importantly, for any level of liquidity, the level of turnover in the index will impact the performance of the tracking fund through the frequency of occurrence of transaction costs. A key implication is that the smart beta index turnover and capacity constraints need to be methodologically and carefully handled through the construction of the index. (...)"
    Copyright Funds Europe [Full text - Registration required]


  • Journal du Dimanche (14/12/2014)  
    Le CAC 40 a-t-il encore la cote?
    "(…) Le 4 décembre, le conseil des indices a opté pour un statu quo du classement des 40 premières valeurs françaises. Les critiques sur sa pertinence fusent. (...) Le CAC serait aussi trop concentré, trop sectoriel et trop peu représentatif de l'économie française. Pour Noël Amenc, professeur de finance à l'EDHEC et ancien membre de ce conseil, les règles d'Euronext "donnent surtout trop de pouvoir d'interprétation et de responsabilités à ses membres." (…)"
    Copyright Journal du Dimanche [Full text]


  • ETF.com (11/12/2014)
    Top 10 ETF Stories In 2014
    "(...) As 2014 draws to a close we take a look at ETF.com’s top ten most read stories. Themes included smart beta, fee wars and providers coming together to boost the retail market. (...)
    2.) Morgan Stanley Launches Smart Beta ETF
    The investment bank launched this synthetic ETF in June. It tracks a smart beta, equally weighted index, from EDHEC Risks Institute’s Scientific Beta platform. The fund, called the MS Scientific Beta Global Equity Factors UCITS ETF, will be held on Morgan Stanley’s FundLogic platform and managed by Fundlogic SAS. The ETF is domiciled in Ireland and has a primary listing on the London Stock Exchange, with a total expense ratio of 0.40 percent.
    3.) Amundi And EDHEC Join For Smart Beta Collaboration
    EDHEC-Risk Institute’s smart beta platform teamed up with Amundi in February to bring smart beta ETFs to the market. The coupling followed on from the research house’s replication licence with Morgan Stanley in January.
    (...)"
    Copyright ETF.com [Full text]


  • Professional Wealth Management (09/12/2014)
    Providers rush to meet demand for fixed income ETFs
    "(...) ETFs continue to enjoy record inflows with investors using them for both short-term trading and long-term positions, while providers are offering ever more innovative products. (...) Amundi’s new launch is based on an EDHEC Risk Scientific Beta index which combines four risk factors – momentum, size, volatility and value. “ERI Scientific Beta is a first mover but other major index providers are looking at the same approach,” says Mr Guignard. “Strong research capabilities are required for this and when it comes to risk factors other than minimum volatility, not many providers are offering a combination of risk factors and weighting schemes.” Using fundamental weightings in place of market cap ones can improve a portfolio’s Sharpe ratio, according to EDHEC researchers who back-tested the performance of multi-strategy equity indices using a combination of value, momentum, size, and low volatility factors over a range of geographies over 10 years. The Sharpe ratio for the smart beta indices was 0.47, compared to a traditionally-weighted portfolio reading of 0.34, which was partly a result of lower volatility. The most marked difference occurred in developed Asia-Pacific markets ex-Japan where Sharpe ratios were up 0.21 from the traditional benchmark’s reading of 0.43. (...)"
    Copyright The Financial Times Limited [Full text]


  • Financial News (08/12/2014)
    Drilling down into smart beta
    "(...) Financial News asked practitioners in each field for their insights on smart beta, whether smart products live up to their name and where the market might develop next. (...)
    THE ACADEMIC Prof. Noël Amenc, Director, EDHEC Risk Institute and CEO, ERI Scientific Beta.
    What do you mean when you talk about smart beta? There are two definitions due to market trends. The first concerns portfolio diversification, and “smart” refers to the stock weighting. It’s a term for strategies like equal weight, minimum volatility and max decorrelation. You are effectively saying weighting by market capitalisation is not smart because it leads to a benchmark that is excessively concentrated and poorly diversified. The other part of the definition is about the beta, and people also refer to “alternative beta”. Cap-weighted indices do not provide good exposure to risk factors because they are only exposed to large growth stocks that in the long run are not well rewarded. (...) For me, it is a two-fold definition: smart beta means, first, being exposed to well rewarded factors and, second, being well diversified in that exposure. (...)
    Does a smart beta index always result in a smart ETF? There are different aspects. First, you don’t want too much slippage between the performance of the index and ETF, which is a question of investability, where the turnover and liquidity of the index are replicated. It is also important to ensure the index’s past performance is a fair representation of the future. That is robustness. (...) If you mix relative robustness and absolute robustness, you have a very robust, smart ETF.
    What next for smart beta in the ETF space? The next step will be allocation across indices. There are now a large number of ETFs or indices giving a wide range of factor exposures. The scope for sophistication in developing new indices in future has a counterpart in a lack of robustness. Because all the academic literature results have been implemented, index innovation now is mainly about outperformance through a kind of back-tested stock-picking. That is absolutely not robust. The main risks in smart beta innovation are factor fishing and data mining. Instead, we should look to another part of the academic literature that is rarely implemented by passive investment professionals, which is dynamic allocation across indices.
    (...)"
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  • Le Figaro Etudiant (05/12/2014)  
    Écoles de commerce : la recherche, un atout essentiel pour exister à l’international
    "(...) Avec un budget dédié à la recherche de 12 millions d’euros, l’EDHEC a lancé dès 2006 sa stratégie de développement de quelques pôles d’excellence en recherche. Elle en compte aujourd’hui quatre: le plus réputé en risk management, mais aussi en droit, en analyse financière/comptabilité et en family business. (...) Avec notre stratégie “research for business”, nous entendons impacter les entreprises par nos travaux et être financés par ces entreprises», souligne Christophe Roquilly, doyen du corps professoral et de la recherche à l’EDHEC. Une démarche qui semble payer. «C’est grâce à la renommée de l’EDHEC Risk Institute que l’école a par exemple décroché des partenariats académiques avec les prestigieuses universités américaines de Yale et de Princeton», se félicite Christophe Roquilly. (...)"
    Copyright Le Figaro [Full text]


November 2014

  • FT Adviser (26/11/2014)
    ERI ‘casts doubts’ over smart beta
    "(...) Investors need to be warned that passive funds tracking specialised indices only work in certain markets and do not guarantee outperformance, a research paper has claimed. Some passive funds track an index that has been constructed based on a certain factor. This criterion can range from a focus on companies that pay dividends to a decision to hold an equal weighting of each stock within an index. Funds that follow such specialised indices have become known as ‘smart beta’ vehicles. ERI Scientific Beta, which provides smart beta products, has said those smart beta funds that track equally-weighted indices may not always outperform, in spite of claims by proponents that they are all-weather investments. (...) But ERI Scientific Beta, which is the index arm of the EDHEC-Risk Institute, has claimed there is no evidence such funds can consistently outperform. In a study entitled ‘Robustness of Smart Beta Strategies’, ERI Scientific Beta put forward the case for a diversified portfolio of smart beta factors. The study said there was “no positive and statistically significant long-term risk premium for a ‘value’ factor definition that relies on the approach termed ‘fundamental’, even though this approach is highly popular with investors and index providers”. (...)"
    Copyright FT Investment Adviser [Full text]


  • Top 1000 Funds (26/11/2014)
    How to hedge long-term inflation-linked liabilities without inflation-linked instruments
    "(...) In this context, the Ontario Teachers’ Pension Plan (OTPP or Teachers’) has been supporting an academic research chair at EDHEC-Risk Institute with a focus on analysing the design of novel forms of liability-hedging portfolios that do not solely rely on inflation-linked securities. The main research question addressed in the initial stages of the research project was the following: In the presence of capacity constraints on the local inflation-linked bonds market, can one expect a suitably-designed portfolio, potentially involving nominal bonds, foreign inflation-linked bonds and real assets, to be a reliable, and robust across economic regimes, substitute for real bonds in the context of hedging long-term inflation-linked liabilities? [Full text]


  • Ignites Europe (20/11/2014)
    Gatekeepers "Peeling Back the Onion" of Smart-Beta Strategies
    "(...) While strategic-beta ETF proponents tout the lofty returns and relatively smooth long-term rides of such products, advisors and home offices are beginning to ask tough questions about what is really driving the category’s performance. (...) Some academics have raised red flags about the ability of some of these strategies to produce consistent performance. “The existence of so many smart beta strategies coupled with so little information on justification of their performance could cast doubt on the very usefulness of these strategies,” write a group of researchers from the French academic research group EDHEC-Risk Institute’s ERI Scientific Beta unit. Such questions hold some investors back from investing. Doubts over “robustness of outperformance” ranked as the top reason for not investing in smart-beta strategies, according to a survey of investors done by the EDHEC-Risk Institute.(...)"
    Copyright Ignites Europe (a Financial Times service) [Full text - Registration required]


  • L'Agefi Hebdo (20/11/2014)  
    Une classe d'actifs attrayante mais délicate à évaluer
    "(…) La dette « infrastructures » répond bien aux contraintes de gestion actif/passif des assureurs mais son risque ne doit pas être sous-estimé. (...) En attendant les premiers résultats académiques de la chaire "infrastructures" de l'EDHEC-Risk Institute, les investisseurs cherchent la bonne dose d'infrastructure à inclure dans leur allocation. (…)"
    Copyright Agefi [Full text - Registration required]


  • ETF.com (18/11/2014)
    Study Finds Smart Beta Performance Analysis Should Be More Robust
    "(...) European academic think tank – EDHEC Risk Institute (ERI) – has released a study suggesting that smart beta performance reports should be more robust and not from data mining and non-robust weighting methodologies. The Robustness of Smart Beta Strategies publication is from ERI Scientific Beta, the index arm of ERI, and looks at the importance of robustness, discussing how best to measure and assess robustness when analysing the performance of smart beta strategies. According to ERI Scientific Beta it is important to trust academic consensus as the number of smart beta indexes and factors are being launched. It says: “The good idea of factor investing should not be transformed into factor fishing and data mining.” The report states that the “lack of relative robustness arises mainly from data mining and non-robust weighting methodologies, while the lack of absolute robustness comes from undiversified factor exposures.” The study explains that variables such as sales, dividends, book value and cash flow are used as risk factors by many fundamental factor-based funds and indexes with the idea that fundamental indexes could be high-performance smart proxies for the Value factor. This highlights the importance of measuring robustness correctly. Measuring robustness correctly relies on the transparency of track records and the availability of instruments to actually measure the it, such as the probability of outperformance. (...)"
    Copyright ETF.com [Full text]


  • Institutional Asset Manager (18/11/2014)
    Academic consensus is key to robust smart beta strategies, says ERI Scientific Beta study
    "(...) A new publication from ERI Scientific Beta, the index arm of EDHEC Risk Institute, entitled “Robustness of Smart Beta Strategies,” reviews the importance of robustness for smart beta strategies. The paper also explains various methods by which smart beta strategies try to improve robustness, and discusses how to measure and assess robustness when analysing the performance of smart beta strategies. ERI Scientific Beta underlines the importance of trusting academic consensus at a time when the number of factors available is increasingly rapidly. The good idea of factor investing should not be transformed into factor fishing and data mining. The study shows that there is no positive and statistically significant long-term risk premium for a “value” factor definition that relies on the approach termed “fundamental,” even though this approach is highly popular with investors and index providers. ERI Scientific Beta recommends that investors stick tightly to academic consensus in the area of factor definition. (...)"
    Copyright GFM Limited [Full text]


  • NEWSManagers (18/11/2014)  
    Les indices smart beta font mieux que les capi-pondérés
    "(…) L'EDHEC-Risk Institute, qui a développé la gamme d'indices ERI Scientific Beta, a indiqué que sur le mois d'octobre le SciBeta Developed Low Volatility Diversified Multi-Strategy index a été le plus performant, avec un rendement relatif de 1,78% par rapport à l'ensemble des indices pondérés par la capitalisation. Il est suivi de près par le SciBeta Developed Low Liquidity Diversified Multi-Strategy index dont le rendement relatif est de 1,73%. En revanche, le SciBeta Developed High Volatility Diversified Multi-Strategy index a un rendement relatif négatif (-1,15%), et c'est le moins bon de l'ensemble. D'une façon générale, la performance annuelle des indices intelligents sur de longues périodes est supérieure à celles des indices pondérés par la capitalisation allant de 1,33% à 2,72%. L'observation des rendements relatifs depuis le début de l'année, permet de constater que les stratégies, sauf une (" High Volatility" ), offre des rendements positifs par rapport aux indices capi-pondérés. Le SciBeta Developed Low-Volatility Diversified Multi-Strategy index est le plus performant avec un rendement relatif de 3.89%. (…)"
    Copyright Agefi [Full text - Registration required]


  • Private Wealth Canada (17/11/2014)
    Investing Should Be Goal-based
    "(...) The traditional product-centric approach to investing, which focuses on allocating more or less to stocks and bonds as a function of some estimated risk-aversion parametre, needs to be replaced by a goal-based investor-centric approach to wealth management, says the EDHEC-Risk Institute. In particular, an investment framework based on risk-aversion, a crude one-dimensional summary of the complex set of investors’ meaningful objectives, cannot ensure that any particular goal that is essential to the investor can be achieved with certainty. In contrast, goal-based investing is a novel investment solution framework dedicated to allowing investors to secure their essential goals, while maximizing the probabilities of reaching their otherwise meaningful goals that cannot be secured with full probability given their dollar and risk budgets. (...)"
    Copyright Private Wealth Canada [Full text]


  • Ignites Asia (14/11/2014)
    BLF's interest boosts smart beta acceptance in Taiwan
    "(...) Some still remain sceptical about whether or not using the smart beta approach would work in Taiwan. (...) There are reasonable doubts about the robustness of smart beta performance and a pronounced lag in the understanding of the risks of these innovations, which hinders the healthy development of smart beta in Asia and elsewhere, according to Frederic Ducoulombier, Singapore-based director of EDHEC Risk Institute Asia.(...)"
    Copyright Ignites Asia (a Financial Times service) [Full text - Registration required]


  • Ignites Asia (13/11/2014)
    Goal-based investing is 50% more successful: EDHEC
    "(...) Goal-based investing has a 50% greater probability of reaching investment objectives compared to the traditional private wealth management approach, EDHEC-Risk Institute says in a statement. Successful investing doesn’t rely primarily on the standalone performance of a fund or asset class, according to EDHEC. Rather, success depends on how well a portfolio’s performance dynamically interacts with risk factors. Those risk factors include those affecting the present value of investors’ goals and the present value of non-tradable assets and future income streams, the institute says. The traditional product-centric approach to investing, which uses allocations to stocks or bonds to achieve a risk-aversion benchmark is a “crude one-dimensional summary of the complex set of investors’ meaningful objectives”, EDHEC says in the statement. Goal-based investing, however, maximises the probability of reaching meaningful targets that exceed essential goals “through an efficient use of dedicated performance and hedging building blocks as well as a suitably designed allocation to these building blocks”, it adds. (...)"
    Copyright Ignites Asia (a Financial Times service) [Full text - Registration required]


  • aiCIO (06/11/2014)
    How Much Sharper is Smart Beta?
    "(...) Double-digit Sharpe ratio uplifts were the reward for taking a smart beta approach to equities over the past 10 years rather than retaining a market capitalisation benchmark, research has found. Sharpe ratios based on absolute performance of multi-beta multi-strategy (MBMS) equity indices over a range of geographies were considerably better over the decade to the end of October than strategies based on traditional portfolios, according to academics at EDHEC. The MBMS indices used by the researchers were a combination of “smart factor” indices and provided allocations to well-documented risk premia in equity markets, including value, momentum, size, and low volatility. Improved Sharpe ratios were partially due to lower volatility in these indices, EDHEC’s research showed. Volatility in US equity portfolios using a traditional benchmark measured 20.23%, whereas the equal-weighted MBMS index was 19.28% and the equal risk contribution MBMS was 19.23%. This lead to a Sharpe ratio for both smart beta indices of 0.47, compared to a traditionally-weighted portfolio producing a reading of 0.34. (...)"
    Copyright Asset International [Full text]


  • Asia Asset Management (November 2014)
    Raising the bar for super
    Article by Frédéric Blanc-Brude and Frédéric Ducoulombier
    "(…) In Australia, a significant number of probably better-educated and well-off middle class households are breaking away from the “Super” fund industry to create their own pension plan under a separate regulatory framework. While the existence of such an option is perfectly justifiable, the popularity of the self-managed pension fund sector amongst the middle class in Australia may also be interpreted as a symptom of the level of dissatisfaction with retail, industry and other Superannuation funds. Unfortunately, there are reasons to believe that numerous self-managed superannuation fund (SMSF) owners are overconfident in their ability to access or create a long-term investment solution, with or without additional service providers, that can approach the results of a properly designed pension investment plan. (…)"
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  • Funds Europe (November 2014)
    French ETFs: A broad, passive range
    "(…) The French ETF providers are also involved in smart beta, the buzzword du jour in the passive investment space. Using smart beta, investors can gain passive exposure to even more specific strategies: equity indices weighted to favour low-volatility stocks, or to high-growth stocks, for instance. Roughly a third of Amundi ETF’s clients use smart beta and another third are planning to use it, according to a survey by the EDHEC-Risk Institute released in March 2014. The firm launched a multi-smart beta ETF in June which seeks to combine multiple investment factors and so offer investors diversification across smart beta strategies. That said, Wurtz believes smart beta ETFs will remain a niche product for the time being. The main use of smart beta, she says, is for bespoke indices. (...)"
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  • Funds Europe (November 2014)
    EDHEC: Guarding against data mining
    "(…) As factor-based investing gains ground, the EDHEC-Risk Institute says investors need to be wary of influences, such as data mining, that can thwart efficacy of a factor. Institutional investors have started to review factor-based equity investment strategies. The parliament of Norway, which acts as a trustee for the Norwegian Oil Fund, has commissioned a report on the investment returns of the fund. This report was requested after the fund’s performance fell short of the performance of popular equity market benchmarks. The report shows that the returns relative to a cap-weighted benchmark of the fund’s actively-managed portfolio can be explained by exposure to a set of well-documented alternative risk factors. After taking into account such exposures, active management did not have any meaningful effect on the risk and return of the portfolio. The authors argue that such exposures can be obtained through purely systematic strategies without a need to rely on active management. Therefore, rather than simply observing the factor tilts brought by active managers ex-post, investors may consider which factors they wish to tilt towards and make explicit decisions on these tilts. (...)"
    Copyright Funds Europe [Full text - Registration required]


October 2014

  • FT Adviser (29/10/2014)
    Smart-factor investing will help investors: EDHEC
    "(...) Smart beta investing needs to go one step forward to help investors build diversified portfolios of passive funds, a research paper from French business school EDHEC has found. The 96-page academic paper, Risk Allocation, Factor Investing and Smart Beta: Reconciling Innovations in Equity Portfolio Construction, said conventional stock market indices are market-cap weighted, so performance is often skewed towards the largest stocks on the index. Although smart beta – such as creating an index based on dividends or earnings – can provide a “partial answer” to the main shortcomings of market-cap weighted indices, the study claimed investors would benefit from a “smart-factor index”. It said: “This works by constructing indices that explicitly seek exposures to rewarded risk factors and diversifying away from unrewarded risks”. This is done largely through stock selection and calculating the risk/reward profile of each stock. According to the study: “The results we obtain suggest that such smart factor indices lead to considerable improvements in risk-adjusted performance.”(...)"
    Copyright FT Investment Adviser [Full text]


  • Ignites Europe (29/10/2014)
    EDHEC opens access to smart beta indices
    "(...) France’s EDHEC Risk Institute has made it easier for investors to access its range of nearly 3,000 smart beta indices. The research institute’s ERI Scientific Beta platform, which was launched last year, comprises 2,916 customised indices, which are weighted by factors other than market capitalisation. To access the platform, investors initially had to pay €10,000 a year, although EDHEC’s 30 flagship indices were available to use free of charge. However, EDHEC has now scrapped this model and made access to the platform completely free. According to EDHEC, investors now only need to complete free registration to access the platform. Once registered they will be able to consult the methodology that enables each index to be replicated, as well as the back history of index compositions. EDHEC says the move is part of its campaign for “total transparency of index data”. The institute says transparency in the field of indices is “indispensable […] particularly when smart beta is involved, because the promise of outperforming cap-weighted indices is essentially based on simulated track records”. EDHEC adds: “It must be possible for these simulated track records to be challenged by the market and to do so there must be full transparency on the methodology and historical compositions.”(...)"
    Copyright Ignites Europe (a Financial Times service) [Full text - Registration required]


  • ETF Express (28/10/2014)
    EDHEC-Risk Institute extends availability of free index data to smart factor indices
    "(...) The smart factor indices provided by ERI Scientific Beta, EDHEC-Risk Institute’s smart beta index provider offshoot, will be subject to the same free access as ERI Scientific Beta’s existing smart beta indices. The 2,916 indices available on the Scientific Beta platform are accessible through free registration, providing access to the detailed methodology enabling the index to be replicated and to the back history of index compositions. EDHEC-Risk Institute considers that transparency is indispensable in the area of indices, particularly when smart beta is involved, because the promise of outperforming cap-weighted indices is essentially based on simulated track records. It must be possible for these simulated track records to be challenged by the market and to do so there must be full transparency on the methodology and historical compositions. (...) Noël Amenc, director of EDHEC-Risk Institute and CEO of ERI Scientific Beta, says, “The robustness of smart beta indices cannot be assessed with one, two, or even five years of live track record, as is the case for some of our indices. Simulated track records over a long period are essential, but it is even more important to be able to trust those track records, which presupposes full transparency enabling all the actors in the market to be able to share information on and criticism of the indices. Investors often choose indices today on the basis of confidential information, which is a bit like investing in publicly-quoted companies that do not publish their accounts.” (...)"
    Copyright GFM Limited [Full text]


  • ETF Express (22/10/2014)
    Smart beta risks can be controlled while benefitting from performance, says EDHEC-Risk
    "(...) It is possible to reconcile the performance of smart beta with control over the risk of the investment, according to a publication from the Amundi ETF & Indexing research chair at EDHEC-Risk Institute. The report begins with the observation that if the performance of smart beta comes from efficient allocation to smart factor indices maximising the risk-adjusted performance for a given factor exposure, the implementation of a risk allocation solution to support this efficient allocation to smart beta enables the risk constraints to be respected in both absolute and relative terms. In relative terms, it is possible to sharply reduce the tracking error and the relative drawdown of the smart beta investment with robust risk allocation techniques in a portfolio of smart beta indices. As such, a Relative Equal Risk Contribution (ERC) or Relative Global Minimum Variance (GMV) approach for a developed world universe gives tracking error of around 2.5 per cent with relative drawdown of five per cent. In absolute terms and as part of a long-only allocation, even though investable smart beta indices are never pure in the long-only space, it is possible to respect factor risk parity constraints. This result means that it is not necessary to turn to long/short or highly concentrated factor indices that present investability problems and are particularly poorly diversified when reaching objectives on controlled exposure to risk factors. Noël Amenc, director of EDHEC-Risk Institute and CEO of ERI Scientific Beta, says: “For EDHEC-Risk Institute, the challenge with smart beta investing today is not only to avail of smart factor indices with good risk-adjusted performance but also to allocate to these smart factor indices in a risk-efficient way. This new publication shows how this can be done.” (...)"
    Copyright GFM Limited [Full text]


  • Ignites Europe (09/10/2014)
    Amundi to keep up pressure on ETF prices
    "(...) In June Amundi also unveiled its first smart beta ETF, which tracks an index provided by ERI Scientific Beta. The product, which was listed on Frankfurt’s stock exchange last month, is a multi smart beta ETF that tracks an equal risk contribution index blending four main risk factors with five smart beta diversification strategies. (...)"
    Copyright Ignites Europe (a Financial Times service) [Full text - Registration required]


  • Financial News (02/10/2014)
    BlackRock to expand smart beta range
    "(...) Others note that factor investing alone does not necessarily constitute “smart beta” in a traditional sense - Noël Amenc, professor of finance at EDHEC Business School and director of the EDHEC-Risk Institute, said, that in his opinion, factor investing was not equivalent to smart beta. He said: “One can invest in factors in a non-smart way, especially if the factor indices are poorly diversified. There is a big difference in risk-adjusted performance between smart factor indices and factor indices.” (...)"
    Copyright Financial News [Full text - Registration required]


  • Risk.net (01/10/2014)
    FTSE aiming to thrive under new benchmark regulation
    "(...) Factor investing is another trend that is gaining traction, particularly among institutional investors following sophisticated asset allocation strategies. (...) The next step will be to apply the factor overlays to smart beta weightings, an approach already being explored by smaller outfits such as ERI Scientific Beta, part of the EDHEC-Risk Institute. (...)"
    Copyright Incisive Media Investments Limited [Full text - Registration required]


  • IPE (October 2014)
    Real Assets: The sting in the loan tail
    "(…) Frédéric Blanc-Brude and Majid Hasan present a rigorous – yet implementable – framework for measuring the performance of private infrastructure debt. (...) Estimating the performance of infrastructure debt instruments has become a recurring question for both long-term investors and prudential regulators. In a new paper, we propose the first robust valuation, risk measurement and data collection framework for private infrastructure project loans. We focus on those performance measures most relevant to investors at the strategic asset allocation level and prudential regulators for the calibration of risk weightings, including expected loss, expected recovery rates, loss given default, value-at-risk (VaR), expected shortfall or CVaR, duration, yield, and z-spread. We also determine parsimonious data collection requirements. Hence, we can realistically expect to deliver these performance measures at a minimal data collection cost. (…)"
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  • Funds Europe (October 2014)
    EDHEC: Reconciling Risk with Smart Factors
    "(…) Noël Amenc and Lionel Martellini, of EDHEC Business School point out flaws in smart beta allocation and suggest how to overcome them with more efficient allocation to rewarded factors. (...) This risk allocation to smart beta has translated into smart factor index offerings proposed by EDHEC-Risk Institute’s venture that is dedicated to the design and production of smart beta indices: ERI Scientific Beta. This smart factor index offering is innovative compared to the traditional approaches to factor index construction in the long-only universe. Factor indices are often constructed using a selection of stocks that are exposed to the right factor, but their weighting is not the most efficient. One can have traditional cap-weighted factor indices or indices weighted according to the stocks’ exposure to the factor. In both cases, even though the goal of the choice of alternative benchmark was to respond not only to the poor factor exposure but also to the poor diversification of cap-weighted indices, the latter problem is not really addressed by traditional factor indices. (...) It is in this spirit, as part of the Smart Beta 2.0 approach that ERI Scientific Beta offers smart factor indices that are constructed using a dual approach. Conscious that whatever the precautions for ensuring the robustness of their implementation, all diversification strategies contain risks of their own (strategy-specific or model risk), ERI Scientific Beta also proposes to diversify these risks using the concept of the multi-strategy index which has led to the offer of a diversification method based on equal weighting of the diversification strategies available on the Scientific Beta platform. These multi-strategy smart factor indices are, in our view, the ideal ingredients for the implementation of a risk allocation strategy that is also called “multi-smart-beta,” whether defined in absolute or relative terms. (...)"
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September 2014

  • FTfm (22/09/2014)
    The bottom line is a sustainability one
    "(...) The debate about whether socially responsible investment is financially rewarding has been raging for years. Individual studies have found positive and negative effects, while many mainstream investment managers simply have included environmental, social and governance (ESG) factors into their investment process without waiting for academic evidence. (...) Erik Christiansen, former head of SRI at ERAFP, the French public service additional pension scheme, says: “We have not observed an advantage (to SRI) empirically and I don’t see there is a theoretical basis for it to exist.” Mr Christiansen, who is now senior business development director for Europe at EDHEC-Risk, the French research institute, is in favour of sustainable investment, but says investors need to be clear “it is not something you should do from a financial point of view”. (...) At a certain point, it becomes hard to distinguish between “sustainable” or “ESG” investment and good old-fashioned investment research. This is another argument Mr Christiansen puts forward against the idea that there is added value in sustainable investment: “Environmental concerns are not marginal any more. Business leaders are aware of these risks.” (...)"
    Copyright Financial Times Fund Management [Full text]


  • Funds Europe (17/09/2014)
    Smart Beta Report 2014
    Sponsored profile: What next after minimum volatility
    "(…) Amundi, which has more than €800 billion assets under management, recently formed a partnership with EDHEC Risk Scientific Beta, creating a further addition to what is already a strong research department. This has been essential in educating clients on the subtleties found in smart beta. Samama says: “About one third of our institutional clients are already using smart beta, and roughly another third is considering it in the near future. “Our clients are now trying to understand and analyse the pros and cons of each strategy.” Trottier says that generally, investors have either used smart beta already, and are looking for new options to complement their existing positions, or are just beginning to discover how smart beta could work for them. “It is important that they know that smart beta products will perform differently in varying market regimes. We try to make sure they clearly understand what is behind smart beta, and how they can make best use of it.” In June, Amundi launched the Global Equity Multi Smart Allocation Scientific Beta Ucits ETF, which is linked to the EDHEC-Risk Institute’s Scientific Beta Developed Multi-Beta Multi-Strategy Index. Trottier says: “We have decided to play a lot on the diversification aspect by mixing four main risk factors with five popular diversification strategies. The solution works for agnostic clients, who do not have a preference between minimum volatility or maximum deconcentration or equal weightings, and that’s also a way of being quite resistant – it’s a kind of all-weather behaviour.” (...)"
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  • Funds Europe (17/09/2014)
    Smart Beta Report 2014
    Index transparency: Transparent guidance
    "(…) Over two years later, the issue of transparency and related regulations has divided the market, especially in the nascent area of smart beta indexes. One of the most vehement proponents of greater transparency is EDHEC-Risk Institute (ERI), the France-based academic body that has also entered the index market with its own “scientific beta” index. According to Frédéric Ducoulombier, director of ERI Asia, ESMA’s guidelines have yielded limited progress. He cites the imperfect application and narrow interpretation of the rules by index providers and a failure to disclose methodologies, especially in the smart beta space where, he says, “some providers refer to proprietary models and data and use vague language”. Ducoulombier is also concerned that ESMA’s attempts to introduce more transparency could be undermined by the Principles on Financial Benchmarks devised by the International Organisation of Securities Commissions (IOSCO) which, due to successful lobbying from the index providers, ensures continued opacity in the industry because it only requires that they make available “summary information and key features”. Europe is at a crossroads, says Ducoulombier. A draft regulation is currently being discussed by the European Parliament and while the chair of the Parliament’s economic and monetary affairs committee, Sharon Bowles, has openly called for greater transparency, if this draft was to be based on IOSCO rather than ESMA rules, it would represent “an important step backward on the road to transparency”. (...)"
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  • Funds Europe (17/09/2014)
    Smart Beta Report 2014
    Smart beta factors: The ups and downs of smart beta
    "(…) Smart beta aims to solve two key problems inherent in regular market cap-weighted indices. First, market cap-weighted indices don’t give users exposure to all these other factors. And second, they have the problem of concentration, with a tendency to focus on given stocks and sectors, and so may be unduly affected by what happens to a given company or industry. “The aim is to end up with a well-diversified basket of stocks,” says Felix Goltz, head of applied research at EDHEC-Risk Institute (ERI). “And to understand the risk exposure of each.” All major providers of market cap-weighted indices now provide smart beta measures – even if they call them something else. ERI’s Scientific Beta platform recently launched a series of “Multi-Beta Multi-Strategy” indices, combining different smart beta strategies into a single index. According to ERI, these indices deliver excess annual return in relation to the cap-weighted equivalent of almost 4%, with an average improvement in the Sharpe ratio – the measure of return versus risk – of 113%. (...) The key for anyone looking to employ smart beta is to focus on the intended outcome. It’s a matter of asking whether the index you’re considering using is fit for that objective, and how it will perform – both in the current market environment and in the future. And, of course, being flexible. “A multi-strategy approach is perhaps the most viable,” says Goltz. “Each model has its merits over time, and often at different times, so why not combine them and invest an equal portion into each?” (...) It follows that how you navigate the world of smart beta will largely rest on expertise and experience. The good news is that it’s an adaptable model. “If you take the most common factors, and have no view on a particular diversification model, you can use the index,” says Goltz. “Or if you know more, you can take it as a benchmark, making the adjustments you wish to suit your knowledge and tastes, and measure performance against it. Or act passively, in fund tracking that index. How it’s approached is down to the expertise of the investors.” (...)"
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  • Funds Europe (17/09/2014)
    Smart Beta Report 2014
    Roundtable: Experts on smart beta
    "(…) FE: EDHEC-Risk has said that smart beta investors are taking considerable risk because index promoters do not document or explicitly control risks within their smart beta offerings. The academics called into question the robustness of index performance. How does the panel respond to this? (...) Philippides: If I’m interpreting it correctly, they’re looking at the traditional benchmarks and saying that there are inherent risks because of the biases in size or in other kinds of factors. I’m not in a position to comment on all the different kinds of index providers as there are diverse methodologies and a lot of research that goes into creating indices. What I would say, is that EDHEC has brought to market a suite of fully customisable smart beta indices with a consistent methodology, which is currently unique. This allows investors to choose the geography, the weighting and the risk tolerance to a benchmark or strategy that is most relevant to them. (...) Morgan: One of the things that EDHEC and other institutions have done is to say, well, actually, choose your factor exposures quite carefully and put your weighting scheme in, but also impose some sort of tracking error constraints on top of that. If you’re constraining the tracking errors, you’re not getting the maximum benefit possibly, but it’s a trade-off between outperformance and also being able to sleep easier at night with reduced tracking errors. (...)"
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  • Funds Europe (17/09/2014)
    Smart Beta Report 2014
    EDHEC Research: Benefits of Factor Tilts
    "(…) Felix Goltz and Antoine Thabault assess the performance and implementation benefits of multi-factor allocations. (...) Many investors are seeking to improve the performance of their equity portfolios by capturing exposure to rewarded factors. In this article, we analyse the potential benefit of combining factor tilts. Combinations of tilts to different factors may be of interest for two reasons. First, multi-factor allocations are expected to result in improved risk-adjusted performance. In fact, even if the factors to which the factor indices are exposed are all positively rewarded over the long term, there is extensive evidence that they may each encounter prolonged periods of underperformance. More generally, the reward for exposure to these factors has been shown to vary over time. If this time variation in returns is not completely in sync for different factors, allocating across factors allows investors to diversify the sources of their outperformance and smooth their performance across market conditions. Intuitively, we would expect pronounced allocation benefits across factors which have low correlation with each other. Our research has shown that the correlation of the relative returns of four smart factor indices (low volatility, mid-cap, value and momentum) over the cap-weighted benchmark is well below one. This entails in particular that a combination of these indices would lower the overall tracking error of the portfolio significantly. The same analysis done conditionally for either bull or bear market regimes leads to similar results. (...)"
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  • ETF Express (17/09/2014)
    New Amundi ETF launched in XTF segment on Xetra
    "(...) A new exchange-listed index fund issued by Amundi – Amundi ETF Global Equity Multi Smart Allocation Scientific Beta UCITS ETF – is now trading in Deutsche Börse’s XTF segment. The ETF enables investors to participate for the first time in the multi-strategy approach of the Scientific Beta index family. The reference index tracks the performance of the four sub-indices of the Scientific index family and aims to generate a higher return than the indices weighted traditionally by market capitalisation. Only large- and mid-cap companies from industrialised nations are considered for selection, which is based on the following four risk factors: size of the company, the ratio of book value to market value, momentum and low volatility. (...)"
    Copyright GFM Limited [Full text]


  • Institutional Investor (September 2014)
    Using Smart Beta to Outsmart the Market
    "(…) Smart beta is similar to factor investing, a concept that has been around for some time. But they are two different things. “With a traditional factor-based approach, there is greater exposure to stock-specific risk; you haven’t necessarily diversified away other risks inherent in the traditional factor approach,” says Eric Shirbini, global product specialist at ERI Scientific Beta. The ERI Scientific Beta approach to smart beta, or as they call it ‘smart factor’, will identify all the stocks to include in a particular factor-based index, but use a diversification-based weighting scheme. “That’s what had been missing in the market,” he says. (...) There is a lot of discussion about smart beta being an active or a passive strategy, and the truth lies in between. “Smart beta sits between the two,” says ERI Scientific Beta’s Shirbini. It is neither 100 percent active nor 100 passive. “It’s rules-driven, so it’s a passive style, but it does not passively just follow the market but also gives exposure to certain factors,” he adds. An important question arises: As smart beta grows, are investors replacing cap-weighted investments, or are they replacing active management? Investors recognize that cap-weighted investments are too concentrated, and there is concern about being overweight in large-cap growth stocks but even more importantly they are also beginning to realize that smart beta does what active managers do: value tilts, market segment tilts, momentum tilts,” he adds. (...) Because of decisive factor tilts and purposeful integration into portfolios, US investors typically see smart beta as more of an active strategy competing with other active managers, explains Shirbini at ERI Scientific Beta. European investors use it as more of a rules-based and semi-passive approach to achieving relative returns at a lower cost. In this context, there are two applications. “If an active manager is not performing, an asset owner can often replicate the strategy more efficiently and at a lower cost,” he says. In addition, when looking at overall exposures and evaluating risk, an asset owner can add a factor to balance and mitigate if there is too much in one particular area. “For example, if you’re overweight in value, you can add a growth smart beta strategy as part of the asset allocation decision,” he says. (...)"
    Copyright Institutional Investor [Full text]


  • FTfm (08/09/2014)
    Rumblings fail to shift foundations of top index providers
    "(...) And in the fast-developing “smart beta” index market, competitive positions appear far less entrenched. (...) Noël Amenc, chief executive of EDHEC Scientific Beta, predicts: “The quality of the research underlying these new types of index, and thus the robustness of their records, will probably be the central issue in terms of competition within smart beta.” (...)"
    Copyright Financial Times Fund Management [Full text]


  • HedgeWeek (08/09/2014)
    ERI Scientific Beta indices report strong performance in August
    "(...) According to the August 2014 monthly performance report for the ERI Scientific Beta indices, the best performing strategy year-to-date for the developed equity universe is the Efficient Minimum Volatility strategy. That is both in absolute (9.03 per cent) and relative terms (2.01 per cent), while the worst, but still positively, performing strategy is the Maximum Deconcentration strategy, both in absolute (7.77 per cent) and relative (0.74 per cent) terms. The Diversified Multi-strategy index allows extremes to be avoided by diversifying across five weighting schemes and posts year-to-date relative return of 1.30 per cent. Since inception in 2002, the Diversified Multi-strategy index for the Developed Equity Universe also has the lowest turnover. It appears that investing in the Diversified Multi-strategy index cancels out some of the transactions occurring in the single strategies. The turnover is only 25.9 per cent per year. The low maximum relative drawdown of the Diversified Multi-strategy index since inception (4.07 per cent) shows that combining several strategies leads to more robust performance over the long term. Since 1 January 1974 (40 years), all diversified multi-strategy indices exhibit a positive relative return compared to cap-weighted indices, with values ranging from 1.11 per cent to 4.75 per cent for the US universe. Performance for multi-strategy smart beta indices exposed to risk factors known to be well rewarded over long periods remains strong with excess annual performance over broad cap-weighted indices ranging from 1.39 per cent to 2.80 per cent since inception for the Developed universe. (...)"
    Copyright GFM Limited [Full text]


  • ETF.com (05/09/2014)
    5 Reasons Why Low Vol Will Outperform
    "(...) Investors are hardwired to believe that taking higher risks means being rewarded in the long run with higher returns. Yet low volatility stocks have been proven by several academic papers to outperform high volatility stocks. But as investors flood into this strategy, industry participants have questioned whether this outperformance will last. Minimum volatility was found to be the worst performing strategy in July and June, according to EDHEC Risk Institute’s ERI Scientific Beta report. However, the research house also found that minimum volatility delivered the best risk-adjusted performance from January to July and has delivered positive performance of 11 percent since inception in 2002. (...)"
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  • AsianInvestor (September 2014)
    Investors sceptical over smart-beta benefits
    "(…) European investors meanwhile are growing impatient. In a survey by EDHEC Business School, 81% of investors said the credibility of reported track records was undermined by providers' opacity, especially for newer types of index. (...) None of the major factors on which smart-beta funds are built came close to beating the market during the tech bubble. Research by EDHEC Business School shows that most advanced-beta strategies had a phase where they underperformed market cap by 10% over a period of between two and five years. (…)"
    Copyright Haymarket Media Ltd. [Full text - Registration required]


  • Top 1000 Funds (05/09/2014)
    Benchmarking infrastructure a step closer
    "(...) The first valuation and risk measurement model created for unlisted infrastructure debt has been developed, with the release of a paper showing the valuation of illiquid infrastructure project debt, taking into account its illiquidity and the absence of market price feedback, can be done using advanced, state-of-the-art structural credit risk modelling. The paper by EDHEC-Risk Institute is part of an ongoing research project aiming to create long-term investment benchmarks for investments in infrastructure. EDHEC has previously said that improving investors’ access to infrastructure requires the creation of new performance measurement tools that can inform the asset allocation decisions of investors in infrastructure and help them integrate assets like infrastructure debt into their respective risk and return frameworks. The paper proposes to address the challenges of illiquid investment performance measurement including the information scarcity of illiquid investments. Without market prices or large cash flow datasets, performance measurement is not straightforward. At the moment there is an absence of relevant performance measures. (...)"
    Copyright Conexus Financial Pty Ltd. [Full text]


  • Financial News (01/09/2014)
    Meet the 2014 Rising Stars of Asset Management
    "(...) The fourth FN 40 Under 40 Rising Stars in Asset Management, Financial News’ editorial pick of the industry’s most exceptional younger men and women, showcases those individuals who have helped drive this momentum by finding growth opportunities with innovative strategies that help meet clients’ increased demands. (...) Laurent Trottier, head of index management, Amundi (Age 39): Frenchman Trottier manages assets totalling €52 billion across four investment teams and 19 investment professionals in Paris and Tokyo. He has been instrumental in developing a smart beta push by Amundi, one of the UK’s five largest exchange-traded fund providers. Building a partnership with ERI Scientific Beta, the commercial indexing arm of the EDHEC-Risk Institute, led in June 2014 to Amundi launching a range of passive investment products linked to a strategy index developed by Scientific Beta. (...)"
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August 2014

  • ETF.com (20/08/2014)
    4 Views On Smart Beta ETFs
    "(...) Data from ERI Scientific Beta’s July report recently showed that minimum volatility strategies in the smart beta sphere are most popular when it comes to year to date risk adjusted performance. Year to date absolute returns rose to 6.39 percent, with returns of 1.54 percent above the market cap benchmark, the highest results in the analysis of smart beta strategies, according to the data. (...)"
    Copyright ETF.com [Full text]


  • L'Agefi Suisse (20/08/2014)  
    EDHEC/ERI Scientific Beta Team: indices ERI Scientific Beta
    "(...) La stratégie Efficient Minimum Volatility dans le secteur Actions Développées enregistre la meilleure performance depuis le début de l’année, rapporte l’ERI Scientific Beta Team de l’institut Edhec. En termes absolus, l’Efficient Minimum Volatility gagne 6,39% et 1,54% en termes relatifs. La plus faible performance est attribuable à la Maximum Deconcentration Strategy, en progression néanmoins positive de 5,33% (0,48% en termes relatifs). Pour mémoire, l’institut académique Edhec, en vue de remplir sa mission consistant à transférer son savoir-faire à l’industrie financière, a créé l’ERI Scientific Beta, dont l’objectif est de favoriser l’adoption des tous derniers progrès réalisés en matière de smart beta (ou investissement indiciel/passif intelligent). Les indices smart beta permettent une utilisation intelligente des facteurs de risque tels que la volatilité (minimum vol.), les fondamentaux, la diversification ou encore la parité des risques. L’allocation multi smart beta se décline généralement par une approche basée sur des signaux de marché dynamique ou par une approche d’allocation systématique. (...)"
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  • Financial News (18/08/2014)
    ETF shoppers become more selective
    "(...) The TER measures the costs associated with managing a fund such as an ETF, including trading, accounting, legal fees and other operational expenses. However, the TER is just one of the factors investors look at. EDHEC-Risk Institute’s survey of European institutional investors, published in March, shows 68% of respondents evaluating the importance of the TER defined it as “critical”. However, 64.9% said bid/offer spreads and 63.4% said the underlying index were almost as important. (...)"
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  • Les Echos (08/08/2014)  
    Comment le hedge fund Bridgewater a fait gagner 50 milliards de dollars à ses clients en 20 ans
    "(...) Pour son 65ème anniversaire, Ray Dalio peut retrouver le sourire. Cet adepte de la méditation zen, réputé pour son calme et son flegme, voit son hedge fund distancer nettement tous ses grands concurrents (Tudor, Brevan Howard, Moore, Fortress...). Les fonds global macro qui investissent sur tous les grands marchés sont au mieux à l’équilibre (+0,6 %) au premier semestre selon les indices EDHEC-risk. Certains accusent mêmes des baisses à deux chiffres cette année, alors que Bridgewater enregistre des gains de plus de 10 % pour certains se ses fonds.(...)"
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  • Benefits and Pensions Monitor (05/08/2014)
    Measurement Framework For Infrastructure Proposed
    "(...) A paper from the Natixis research chair at EDHEC-Risk Institute on the Investment and Governance Characteristics of Infrastructure Debt Instruments proposes the first academically robust, yet operationally implementable, valuation and risk measurement framework for illiquid infrastructure debt. ‘Unlisted Infrastructure Debt Valuation and Performance Measurement’ says long-term infrastructure debt poses a significant pricing challenge with no market prices, private cash flow data scattered amongst originators, and covenant structures creating "embedded options" that are not taken into account in standard valuation models. Taking these characteristics into account is instrumental to capturing the expected performance of infrastructure debt. Using advanced credit risk modelling and debt valuation techniques, this paper focuses on delivering those performance measures that are the most relevant to investors at the strategic asset allocation level and to prudential regulators for the calibration of risk weightings. It also defines parsimonious data input requirements. Hence, it should realistically be able to deliver these performance measures at a minimal data collection cost. (...)"
    Copyright Benefits and Pensions Monitor [Full text]


  • Automated Trader (01/08/2014)
    EDHEC-Risk "Unlisted Infrastructure Debt Valuation and Performance Measurement" paper
    "(...) A new paper entitled "Unlisted Infrastructure Debt Valuation and Performance Measurement", drawn from the Natixis research chair at EDHEC-Risk Institute on the "Investment and Governance Characteristics of Infrastructure Debt Instruments," proposes the first academically robust, yet operationally implementable valuation and risk measurement framework for illiquid infrastructure debt. (...) Using well-documented parameter estimates, the authors show that infrastructure debt has a dynamic performance profile and that risk levels are strongly influenced by lenders' options to restructure or liquidate. Overall, risk levels are found to be low and expected recovery high. The paper also highlights the existence of a trade-off between credit risk and duration risk which is unique to infrastructure debt. This paper is one of the stepping stones of the "roadmap" established by EDHEC-Risk Institute towards the creation of adequate performance measurement tools for long-term investors in infrastructure. (...)"
    Copyright Automated Trader Ltd [Full text]


July 2014

  • Funds Europe (July/August 2014)
    EDHEC: ETV v Futures: The race is on
    "(…) In the second of two articles on ETFs, Felix Goltz of EDHEC finds where ETFs are considered more advantageous over futures, and where they are not. (...) AS PART OF the Edhec European ETF Survey 2013, produced by Edhec-Risk Institute with the support of Amundi ETF & Indexing, we asked survey respondents whether they invest in alternatives to ETFs, such as futures, total return swaps, and index funds and asked them to rate ETFs and their alternatives according to various criteria. The responses are shown in the table and allow for a few general conclusions. First, in terms of liquidity, transparency, and cost, ETFs are considered advantageous although on some criteria they are less well regarded than futures. Second, ETFs are ranked highest for available range of indices and asset classes. Therefore, European investors and asset managers seem to be well aware of the growth in the diversity of ETFs in recent years. Third, futures are the most serious alternative to ETFs, but ETFs are perceived as superior with regard to minimum subscription, and operational constraints. They score highly for tax and regulatory regime, too. (...)"
    Copyright Funds Europe [www.funds-europe.com - Registration required]


  • Top 1000 Funds (31/07/2014)
    Risk parity – the benefits of a conditional approach
    Article by Lionel Martellini, professor of finance, EDHEC Business School, and scientific director, EDHEC-Risk Institute; Vincent Milhau, deputy scientific director, EDHEC-Risk Institute; and Andrea Tarelli, senior research engineer, EDHEC-Risk Institute
    "(...) Risk parity has become an increasingly popular approach for building well-diversified portfolios within and across asset classes. In a nutshell, the goal of the methodology is to ensure that the contribution to the overall risk of the portfolio will be identical for all constituent assets, which stands in contrast to an equally-weighted strategy that would also recommend an equal contribution but instead simply be expressed in terms of dollar budgets as opposed to risk budgets. While intuitively appealing and empirically attractive, this approach suffers from two major shortcomings. Firstly, typical risk parity portfolio strategies used in an asset allocation context inevitably involve a substantial overweighting of bonds with respect to equities, which might be a problem in a low bond yield environment, with mean-reversion implying that a drop in long-term bond prices might be more likely than a further increase in bond prices. Secondly, standard approaches to risk parity are based on portfolio volatility as a risk measure, implying that upside risk is penalised as much as downside risk, in obvious contradiction with investors’ preferences. In recent research supported by Lyxor Asset Management as part of the “Risk Allocation Solutions” research chair at EDHEC-Risk Institute, we develop a conditional approach to risk parity, which contrasts with standard unconditional risk parity portfolios based on historical volatility estimates, with an attempt to alleviate the two aforementioned concerns. (...)"
    Copyright Conexus Financial Pty Ltd. [Full text]


  • CCR Magazine (31/07/2014)
    EDHEC-Risk Institute releases robust yet implementable valuation method for infrastructure debt
    "(...) A new paper entitled “Unlisted Infrastructure Debt Valuation and Performance Measurement”, drawn from the Natixis research chair at EDHEC-Risk Institute on the “Investment and Governance Characteristics of Infrastructure Debt Instruments,” proposes the first academically robust, yet operationally implementable valuation and risk measurement framework for illiquid infrastructure debt. Long-term infrastructure debt poses a significant pricing challenge with no market prices, private cash flow data scattered amongst originators, and covenant structures creating "embedded options" that are not taken into account in standard valuation models. Taking these characteristics into account is instrumental to capturing the expected performance of infrastructure debt. Using advanced credit risk modelling and debt valuation techniques, this paper focuses on delivering those performance measures that are the most relevant to investors at the strategic asset allocation level, and to prudential regulators for the calibration of risk weightings. It also defines parsimonious data input requirements. Hence, we can realistically expect to deliver these performance measures at a minimal data collection cost. (...)"
    Copyright GTS Media Ltd [Full text]


  • AsianInvestor (31/07/2014)
    Inquiry findings on Aussie super system stir debate
    "(…) In a recent report, EDHEC-Risk Institute argued that the introduction of increased choice and better scale economies had not resulted in a more efficient superannuation system. It further noted that the system was not designed to provide life-long income. As a result is said fund providers tended to offer simple products rather than sophisticated asset-liability management solutions. Meanwhile, individual accounts expose participants to investment, inflation and longevity risks and do not create the same cost efficiencies as pooled pension plans. EDHEC's findings follow the release earlier this month of the Murray Inquiry's report on the superannuation scheme's equity and efficiency. (…)"
    Copyright Haymarket Media Ltd. [Full text - Registration required]


  • Global Custodian (30/07/2014)
    EDHEC-Risk Recommends Steps to Strengthen Superannuation
    "(...) The Australian superannuation system could be strengthened by new, industry-led reporting standards consisting of essential information for members, and a certification scheme to match individuals’ retirement needs to best-match retirement products, according to EDHEC-Risk Institute. EDHEC-Risk Institute has recently released a report, Superannuation v2.0: Towards the Next Generation of Pension Funds in Australia, which looks to developments and opportunities for improvement to superannuation in Australia, particularly given the recent regulatory reforms presented in the Stronger Super package and the MySuper default option. “Numerous surveys suggest that Australians are not completely satisfied with superannuation as it exists today,” the paper says. “First, fund members tend to think that they will not have enough to retire and second, that investment plan providers are not necessarily acting in their best interest.” EDHEC-Risk Institute suggests improvements to “achieve clear objectives sat relevant horizons, using state-of-the-art risk management to deliver these outcomes with highest probability.” (...)"
    Copyright Asset International Inc. [Full text - Registration required]


  • Benefits and Pensions Monitor (28/07/2014)
    Industry Needs Reporting Standard
    "(...) The latest research argues that the Australian superannuation industry could be further strengthened by the development of an industry-led reporting standard and certification scheme. A study from the EDHEC-Risk Institute, sponsored by the AXA Investment Managers’ Research Chair on Regulation and Institutional Investment, argues for the design of a second generation of DC funds to achieve clear objectives at relevant horizons, using state-of-the-art risk management to deliver these outcomes with the highest probability. ‘Superannuation v2.0: Towards the Next Generation of Pension Funds in Australia’ also proposes a reporting and certification scheme of retirement solutions that would allow solution providers to signal to fund members which long-term investment solutions best match individual fund members’ post-retirement income needs, thereby assisting fund members to assess the relevance and suitability of retirement solutions in relation to their retirement goals such as targeted retirement age and targeted retirement income. (...)"
    Copyright Benefits and Pensions Monitor [Full text]


  • Ignites Asia (22/07/2014)
    Building defaults, choice into HK, Australia pensions
    "(...) Australia’s superannuation assets total around A$1.8 trillion (US$1.683 trillion), according to Pauline Vamos, Sydney-based CEO at the Association of Superannuation Funds of Australia (ASFA). Around 90% of employees in Australia are in pooled investment vehicles, and nearly 50% of those are in default portfolios, she noted. These default portfolios make up around one third of total superannuation assets, while non-default portfolios in pooled funds make up another third of the total, she said. Just under 5% of employees are in self-managed super funds, but that 5% accounts for the remaining one third of total superannuation assets, according to Vamos, who spoke at the EDHEC Risk Days Asia 2014 conference in Singapore earlier this month. (...)"
    Copyright Ignites Asia (a Financial Times service) [Full text - Registration required]


  • Pensions & Investments (21/07/2014)
    UPS is looking for smart beta to deliver
    "(...) Noel Amenc, director of EDHEC Risk Institute and CEO of its ERI Scientific Beta unit, both in Nice, France, agrees. Mr. Amenc — who has consulted with Mr. Haque — also suggests an application of smart betas, beyond a single strategy, to achieve what he calls smart beta 2.0. “You will not achieve (relative risk management) with one index. You will achieve that with a diversification across smart betas. So you will have the benefit of (many) smart betas, invested in a well-diversified index ... (and) better risk-adjusted than a normal smart beta strategy,” Mr. Amenc said. (...) Mr. Amenc said using diversified smart beta portfolios can overcome shortcomings. A smart beta that tries to maximize, for example, value exposure could minimize diversification. “What I call smart beta 1.0, the first generation of smart beta indexes, are strategies that either do not explicitly control factor exposure or do not try to provide well-diversified indexes,” Mr. Amenc said in a follow-up e-mail. “When you use (smart beta) indexes, these indexes don't have any objective of diversification and moreover do not use the correlation between stocks. (Smart beta alone) doesn't try to maximize diversification. It just tries to maximize your exposure to value with a selection of criteria that produced good performance in the past.” Other smart betas “try to achieve a diversification objective. But they don't really control for factor exposure, (which) means that sometimes you are exposed to factors you aren't looking for” and that constitute an important driver of the index risk, Mr. Amenc said in the interview. “I'm not saying smart beta is not (capable of achieving) outperformance,” Mr. Amenc said. “I'm just saying it's not a free lunch.” The solution in general is to “try to diversify the risk of your smart betas,” Mr. Amenc said, advocating for a new generation of indexes called “multibetas.” “This new generation of smart beta indexes combine risk control and ... the choice of exposure to the right factors with the benefits of diversifying away the specific risk” investors don't want, Mr. Amenc said. (...)"
    Copyright Pensions & Investments [Full text - Registration required]


  • Ignites Asia (11/07/2014)
    What institutions expect in index transparency
    "(...) As index strategies become more widely adopted by institutional investors in Asia, higher transparency is also increasingly being called for to better evaluate the exact constituents and associated risks of different indices. Indices must have the transparency to allow the evaluation of a variety of risk measures, including the concentration of constituents, volatility, correlation and dependency metrics, Ashraf Chaudhry, Brisbane-based head of research at Queensland Investment Corporation (QIC), said at the EDHEC Risk Days Asia 2014 conference in Singapore last week. There must also be enough transparency in order to evaluate implementation concerns for different index-based strategies, such as liquidity risk, turnover and transaction costs, he said during a panel session entitled “Index Transparency: What Investors Expect”. But for index providers, offering greater index transparency would mean higher costs, resulting in some tension in their relationship with investors, he said, although he believes this tension will likely be eased by market forces in the long run. (...)"
    Copyright Ignites Asia (a Financial Times service) [Full text - Registration required]


  • Ignites Asia (10/07/2014)
    Strong concentration risk in cap-weighted index portfolios
    "(...) Investment in capitalisation-weighted equities indices tends to provide a poorly diversified portfolio of individual constituent stocks, according to Lionel Martellini, professor of finance at the EDHEC Business School and scientific director at the EDHEC Risk Institute. In a presentation last week at the EDHEC Risk Days Asia 2014 conference in Singapore, Martellini displayed a time series of the S&P 500 Index from 1958 to 2014 to demonstrate that the effective number of constituents (ENC) of the index at its highest is equal only to 260 individual stocks and at its lowest falls to just 120 individual stocks. Martellini’s measurement of the ENC for an index gives a value of the distribution of weighting or assets held within a range of individual stocks in an index or a portfolio, rather than simply the nominal number of constituent stocks, which for the S&P 500 would be 500. Similar results are drawn from measuring other major global equities indices, and the conclusion is that capitalisation-weighted indices are very far from equally weighted, he said. It shows that a few large stocks can actually make up a large portion of indexed portfolios and lead to a concentration of portfolios, and there also can be large variation in concentration through time, he added. The consequence is significant from a risk perspective, as a portfolio that claims to invest in 500 different stocks in the index would effectively be investing in much fewer stocks, Martellini said during a session entitled “Asset Allocation to Risk Reporting”. (...)"
    Copyright Ignites Asia (a Financial Times service) [Full text - Registration required]


  • Financial Times (09/07/2014)
    Low volatility is bad for ‘low-vol’ funds
    "(...) Longer term, the picture looks better. The “Scientific Beta” indices produced by the EDHEC-Risk Institute, widely followed in the industry, show that US low-vol stocks suffered a 47.8 per cent loss during the 2007-09 crisis, while the total return on the S&P 500 dipped by 54.9 per cent. Since the trough in March 2009, low-vol’s performance has been almost identical to the S&P. It is only in the last two years that low-vol has fallen badly behind. There is another use for low-vol, which is as one “smart beta” strategy alongside others. The philosophy is that several factors have been shown over time to beat the market. They will not all perform at the same time, but a balanced portfolio of different strategies might work. Even on this basis, low-vol is a bad place to be at present. It was the worst-performing smart beta strategy last month, according to EDHEC-Risk, and the only factor to lag the market. This is readily explained. When volatility is low anyway, people will not pay up to avoid volatility. (...)"
    Copyright Financial Times [Full text]


  • ETFI Asia (Q2 2014)
    Beneath the hood
    Article by Felix Goltz, head of applied research, EDHEC-Risk Institute, research director, ERI Scientific Beta
    "(...) Alternative equity indices or smart beta strategies are seen to provide tremendous growth potential. A recent survey (the EDHEC European ETF Survey 2013 by Ducoulombier et al. (2014)) reveals that while only 30% of investment professionals already use products tracking smart beta indices, more than one third of respondents are considering investing in such products in the near future. Recent research that we have conducted with the support of Amundi ETF & Indexing1 argues that current smart beta investment approaches only provide a partial answer to the main shortcomings of cap-weighted indices, and develops a new approach to equity investing referred to as smart factor investing. We assess the benefits of addressing the two main problems with cap-weighted indices (their undesirable factor exposures and their heavy concentration) simultaneously by constructing factor indices that explicitly seek exposures to rewarded risk factors, while diversifying away unrewarded risks. (...)"
    Copyright Asia-Pacific Media Limited [etfiasia.com]


  • L'Agefi Suisse (08/07/2014)  
    EDHEC/ERI Scientific Beta: Smart Beta Performance Report
    "(...) L’EDHEC-Risk Institute a publié hier le rapport mensuel de juin relatif aux performances des indices smart beta développé par l’ERI Scientific Beta Team de l’institut précité. Depuis le début de l’année, la meilleure stratégie pour l’univers des Actions Développées a été l’Efficient Minimum Volatility (...). (...)"
    Copyright L'Agefi Suisse [Full text - French - Registration required]


  • Risk.net (07/07/2014)
    ETPs gathered $22.4bn of new assets in May, says ETFGI
    "(...) There is now over $2.5 trillion invested in exchange-traded products after May increase of $22.4 billion, according to ETFGI (...) Amundi has launched the first multi-smart beta exchange-traded fund (ETF) on NYSE Euronext Paris. Based on the Scientific Beta Developed Multi-Beta Multi-Strategy ERC strategy index, the ETF carries a total expense ratio of 0.4% and is available in euro, sterling and US dollar share classes. (...)"
    Copyright Incisive Media Investments Limited [Full text - Registration required]


  • HedgeWeek (07/07/2014)
    Efficient Minimum Volatility strategy best performing ERI Scientific Beta index in June
    "(...) The Efficient Minimum Volatility strategy was the best performing strategy for the developed equity universe in June, both in absolute (8.54 per cent) and relative terms (2.20 per cent), according to ERI Scientific Beta. The worst, but still positively, performing strategy was the Maximum Deconcentration strategy, both in absolute (7.54 per cent) and relative (1.20 per cent) terms. The Diversified Multi-strategy index allows extremes to be avoided by diversifying across five weighting schemes and posts year-to-date relative return of 1.60 per cent. Since inception in 2002, the Diversified Multi-strategy index for the Developed Equity Universe also has the lowest turnover. It appears that investing in the Diversified Multi-strategy index cancels out some of the transactions occurring in the single strategies. The turnover is only 26.5 per cent per year. The low maximum relative drawdown of the Diversified Multi-strategy index since inception (4.07 per cent) shows that combining several strategies leads to more robust performance over the long term. Since 1 January 1974 (40 years), all diversified multi-strategy indices exhibit a positive relative return compared to cap-weighted indices, with values ranging from 1.11 per cent to 4.75 per cent for the US universe. Performance for multi-strategy smart beta indices exposed to risk factors known to be well rewarded over long periods remains strong with excess annual performance over broad cap-weighted indices ranging from 1.41 per cent to 2.84 per cent since inception for the developed universe. (...)"
    Copyright GFM Limited [Full text]


  • Financial Times (04/07/2014)
    Big ideas from unheralded sources
    "(...) Dimensional and EDHEC may not be household names but they have clever ideas (...) EDHEC has come up with a range of what it calls “scientific beta” indices. There are ETFs based on these indices; Morgan Stanley run them for institutions here in the UK while Amundi has recently launched a retail ETF that meets European “Ucits” rules on diversification and that trades on Euronext. These ETFs are great value and I think they are a brilliant core holding for anyone who wants to go one better than the DFA approach. They aim to combine value, size, low volatility and momentum strategies into one product, and exclude all those stocks that tend to underperform over a stock market cycle. (...)"
    Copyright Financial Times [Full text]


June 2014

  • Financial Times - Comment - Letters (30/06/2014)
    Hedging questions were answered at least 50 years ago
    From Ms Hilary Till, Principal, Premia Capital Management, Chicago, IL, US, and Research Associate, EDHEC-Risk Institute
    "(...) Sir, I read with interest “US commodities regulator wrestles hedgers and speculators” (June 20) on the difficulty in precisely defining these two categories of market participation. One might note that this topic can be expected always to be controversial. One of the best academic articles that I am aware of on this topic was from Paul Cootner from MIT in the 1960s. Cootner used the grain markets to explain how commercial hedging is essentially a form of highly specialised speculation. For example, a grain merchant who hedges wheat inventories creates a “basis” position and is then subject to the volatility of the relationship between the spot price and the futures price of the commodity. The grain merchant is, in effect, speculating on the “basis”. The basis relationship tends to be more stable and predictable than the outright price of the commodity, which means that the merchant can confidently hold more commodity inventories than otherwise would be the case. What futures markets make possible is the specialisation of risk-taking rather than the elimination of risk. One can also refer to even earlier academic papers for a solid understanding of the commodity futures markets; namely, ones from the 1950s by Holbook Working while he was with the (then) Stanford-affiliated Food Research Institute. Working showed that it is not necessarily precise daily correlation that matters for choosing a proxy hedge, but whether the proxy hedge provides a business with protection during a dramatic price move that could bankrupt a company. It is astonishing that current controversial questions on how to understand commercial hedging activity were all answered in seminal academic papers from 50 and 60 years ago! (...)"
    Copyright Financial Times Fund Management [Full text]


  • ETF.com (27/06/2014)
    Active ETFs – Fad Or Fixation?
    "(...) French think tank and business school EDHEC-Risk’s annual investor survey has found consistently over the past seven years that only around 10 percent of respondents have interest in new active ETF product launches. Felix Goltz, head of applied research at EDHEC-Risk Institute, said the key idea behind ETFs is they are rules-based and follow a transparent methodology which can’t be achieved with actively managed ETFs. “Yes, they are exchange traded and liquid, but transparency and low fees are important and these certainly exclude active ETFs,” he said. (...)"
    Copyright ETF.com [Full text]


  • ETF.com (25/06/2014)
    EDHEC Launches 72 Smart-Beta Indexes
    "(...) EDHEC Research Institute’s ETF arm, ERI Scientific Beta, launched 72 smart-beta indexes on April 30, dubbing the offering the Multi-Beta Multi-Strategy Indices. These smart-beta indexes seek to avoid overconcentration and exposure to systematic risk, both downfalls of market-capitalization-weighted indexes, by following strategies reflecting value, momentum, size and low volatility to ensure diversification. The Multi-Beta Multi-Strategy Indices include two weighting approaches: equal weight or equal risk contribution—the latter of which targets tracking error and ensures no strategy outweighs the other. First launched in February 2014, EDHEC’s Scientific Beta platform, to which the newly launched indexes belong, now offers more than 3,000 smart-beta indexes. (...)"
    Copyright ETF.com [Full text]


  • ETF Strategy (24/06/2014)
    Morgan Stanley introduces smart beta ETF on LSE
    "(…) Morgan Stanley has launched its debut exchange-traded fund, the MS Scientific Beta Global Equity Factors UCITS ETF (GEF). The ETF, which was unveiled on the London Stock Exchange earlier this month, provides exposure to the Scientific Beta Developed Multi-Beta Multi-Strategy Equal Weight Index and is the first ETF to be launched between Morgan Stanley and smart beta index provider ERI Scientific Beta. Rolled out under the investment bank’s FundLogic platform, the fund aims to meet the growing demand from institutional investors to access smart beta indices and factor indices through liquid and transparent products. Hitendra Varsani, Head of the Quantitative and Derivative Strategies team at Morgan Stanley, said: “We are pleased to provide UCITS investors with access to the Scientific Beta Developed Multi-Beta Multi-Strategy Equal-Weight Index. The index was devised by ERI Scientific Beta, which is an innovative smart beta index provider and an affiliate of the EDHEC-Risk Institute. The ETF gives investors exposure to developed market equities and combines smart beta investing and risk factor investing into a single strategy.” Professor Noël Amenc, Director of EDHEC-Risk Institute and CEO of ERI Scientific Beta, added: “We are excited to partner with Morgan Stanley in providing its institutional clients with transparent smart-beta index replication using a market-leading fund platform. Through Morgan Stanley’s FundLogic platform, UCITS ETF investors can get exposure to our Strategy in a very efficient way.” (...)"
    Copyright ETF Strategy Ltd [Full text]


  • Benefits and Pensions Monitor (23/06/2014)
    Approach To Risk Parity Developed
    "(...) A study by the EDHEC-Risk Institute develops a conditional approach to risk parity, which contrasts with standard unconditional risk parity portfolios based on historical volatility estimates. ‘Towards Conditional Risk Parity – Improving Risk Budgeting Techniques in Changing Economic Environments’ from the Lyxor research chair on ‘Risk Allocation Solutions’ looks at the issue of risk parity. Risk parity has become an increasingly popular risk management methodology within and across asset classes. However, while intuitively appealing, this approach suffers from one major shortcoming, namely the fact that it is not explicitly sensitive to changes in market conditions. In this paper, three distinct conditional risk parity strategies, explicitly designed to optimally respond to changes in state variables, are offered. (...)"
    Copyright Benefits and Pensions Monitor [Full text]


  • Le Temps (23/06/2014)  
    La gestion de fonds dite passive se développe et devient plus performante
    Article par Noël Amenc, Professeur de finance, directeur EDHEC-Risk Institute, CEO, ERI Scientific Beta
    "(...) C’est dans ce contexte qu’EDHEC-Risk Institute a promu l’idée, d’une part, que ces indices devaient être totalement transparents pour permettre d’en apprécier les bénéfices mais aussi les risques et, d’autre part, que leur construction devait permettre aux investisseurs de choisir les risques auxquels ils souhaitaient ou pas être exposés avec ces nouvelles formes d’indices. Ce choix de risques ou de betas a été formalisé dans une approche dite Smart Beta 2.0 et a donné lieu à de nombreuses publications scientifiques internationales ainsi qu’à l’initiative ERI Scientific Beta. Enfin, très récemment, les équipes de recherche de l’EDHEC-Risk Institute ont proposé une nouvelle approche de l’investissement fondée sur la sélection et l’allocation à des facteurs de risques au travers du concept de smart factor investing. Il s’agit, dans le cadre d’une méthodologie de construction d’indices Smart Beta 2.0, de concilier le choix d’une forte exposition à des facteurs de risques bien rémunérés sur le long terme (notamment Value, Low Volatility, Taille, Momentum) avec une bonne diversification du risque spécifique des indices représentatifs de cette forte exposition. En effet, généralement les indices factoriels proposés sur le marché privilégient la forte exposition au facteur de risque considéré. Cet objectif de concentration de l’indice sur un facteur de risque systématique est de fait contradictoire avec la bonne diversification de son risque spécifique. Les résultats des recherches de l’EDHEC-Risk Institute montrent qu’en moyenne, sur une longue période, l’approche «smart factor» permet d’accroître de 68% la performance ajustée du risque par rapport à celle des indices factoriels traditionnels. (...)"
    Copyright Le Temps [Full text - French - Registration required]


  • FT Adviser (23/06/2014)
    Making inroads into infrastructure
    "(...) It is, however, difficult to make a clear comparison between the various infrastructure trusts because there is no clear benchmark against which to compare them. Earlier this month the EDHEC-Risk Institute put out a position paper outlining this problem and claiming that “investment in infrastructure by long-term investors will not be possible without adequate measures of expected performance and risk, i.e. benchmarks”. The report stated: “Matching the huge demand for capital investment in infrastructure projects around the world with the available supply of long-term funds by institutional investors has never been so high on the international policy agenda. “For asset allocation to long-term investments in infrastructure to grow in a sustainable manner, investors need reliable information on the performance to be expected from such investments over time and in different economic environments, and regulators need to understand the risks investors are taking to correctly calibrate their prudential frameworks.” The institute’s paper put forward eight steps that they think should be taken in order to establish a benchmark for infrastructure investing, though it will prove difficult as it will mean accurately and frequently valuing thinly-traded assets.(...)"
    Copyright FT Investment Adviser [Full text]


  • NEWSManagers (17/06/2014)  
    Lyxor AM et l'EDHEC-Risk Institute améliorent les stratégies de risk parity
    "(…) Issue des travaux de la Chaire de Recherche de Lyxor dédiée aux « Solutions d'allocation du risque », la dernière publication de l' EDHEC-Risk Institute* met en évidence une nouvelle génération de stratégies de parité du risque (« risk parity ») qui tient compte de mesures de risque plus appropriées que la volatilité historique. Si la risk parity est devenue une méthode de gestion de plus en plus utilisée, cette approche présente néanmoins un défaut majeur, à savoir son manque de sensibilité explicite aux évolutions du marché. La nouvelle génération de risk parity (ou risk parity conditionnelle) mise en évidence dans les travaux de la Chaire de Recherche Lyxor est plus efficace car elle intègre une nouvelle dimension, le risque directionnel, ainsi que des données concernant le rendement prévu. Dans ces conditions, la risk parity constitue un modèle de gestion active solide et une alternative intéressante aux méthodes traditionnelles de gestion active pour les gestionnaires qui ne souhaitent pas concentrer leurs portefeuilles sur un petit nombre de positions agressives. (…)"
    Copyright Agefi [Full text - Registration required]


  • Investing.com (17/06/2014)
    Position Paper: Investors Need Benchmarks
    "(...) Many investors understandably don’t want to make an investment at all if they’re going to end up in the position of a mushroom: kept in the dark and fed feces. Accordingly, in a new position paper, EDHEC-Risk maintains that the world’s investors need reliable data on the performance they can expect from their infrastructure investment, and that the development of the benchmarks that are necessary to do that is a challenging task, one that must be “high on the international policy agenda.” The report, written by Frédéric Blanc-Brude, the head of the Institute’s 2012-vintage thematic research program on infrastructure financing and investment, draws on the research of that program and details what Blanc-Brude calls a “road map” to creating the benchmarks that in turn will support “the infrastructure investment narrative.” They need this because the long-term illiquid nature of such investment increases information asymmetry between investors and their managers. The latter are those who will come under suspicion of maintaining the dark environment for the mushrooms. (...)"
    Copyright Fusion Media Limited [Full text]


  • HedgeWeek (16/06/2014)
    It is possible to construct improved forms of risk parity strategies, study shows
    "(...) An EDHEC-Risk Institute study from the Lyxor research chair on “Risk Allocation Solutions” develops a conditional approach to risk parity, which contrasts with standard unconditional risk parity portfolios. According to the paper, “Towards Conditional Risk Parity – Improving Risk Budgeting Techniques in Changing Economic Environments”, it has become increasingly apparent that a portfolio that seems to be well-balanced in terms of dollar contributions can be extremely concentrated in terms of risk contributions because of differences in volatility and pairwise correlation levels amongst the constituents. (...)"
    Copyright GFM Limited [Full text]


  • Financial News (16/06/2014)
    Pension schemes urged to hedge against tail risk before volatility returns
    "(...) Pension funds should be taking advantage of low volatility and recent stock market gains to hedge against the risk of extreme events hitting their funding positions, according to leading investment advisers. (...) A study published in February by EDHEC-Risk Institute of 104 mainly European investors found that 80% understood the LDI approach, and 51% overall (and a large majority in the UK) implemented a formal separation of return-seeking assets and those held to match liabilities. Interest rate risk is the main concern of those investors who do hedge against unexpected changes in risk. (...)"
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  • ETF.com (16/06/2014)
    Amundi Launches Eurozone Bond ETF
    "(...) Valérie Baudson, global head of ETF and indexing at Amundi said: “This latest launch is in line with our wish to offer investors a range of quality and competitively-priced products, enabling them to allocate assets according to their market expectations.” Amundi launched an ETF in June which tracks the EDHEC Risk Institute’s new smart beta "multi-strategy" index, one of the first two asset managers to pair with the institute. (...)"
    Copyright ETF.com [Full text]


  • ETF Express (15/06/2014)
    Morgan Stanley and Amundi unveil UCITS ETFs based on ERI Scientific Beta’s smart beta index
    "(...) Morgan Stanley this week announced the launch of a new ETF, the MS Scientific Beta Global Equity Factors UCITS ETF on its FundLogic platform. The ETF provides exposure to the Scientific Beta Developed Multi-Beta Multi-Strategy Equal-Weight Index and is the first ETF to be launched between Morgan Stanley and ERI Scientific Beta. Its inclusion on the FundLogic platform demonstrates the depth of interest in smart beta products that continues to build among institutional investors. (...) Coincidentally, this week Amundi also announced that it too had launched a similar ETF on NYSE Euronext Paris to provide investors with exposure to the Scientific Beta Developed Multi-Beta Multi-Strategy ERC strategy index. Amundi has an existing range of single “Smart Beta” strategies which can be used by investors as “allocation bricks” according to their market outlook: Minimum Volatility, Mid Cap, Small Cap, Growth, Value and High Dividend. The new ETF offers long-term investors a robust and transparent solution which, by combining different developed market global equities strategies, allows them to go one step further. The Scientific Beta Index created by EDHEC-Risk aims to outperform the equivalent market capitalization weighted index by blending four main risk factors (value, size, low volatility and momentum) with five popular smart beta diversification strategies. (...)"
    Copyright GFM Limited [Full text]


  • ETF Express (13/06/2014)
    Amundi launches first Multi Smart Beta ETF on Euronext
    "(...) Amundi is launching an exchange-traded fund on NYSE Euronext Paris providing investors with exposure to the Scientific Beta Developed Multi-Beta Multi-Strategy ERC strategy index. Amundi has an existing, complementary range of single “Smart Beta” strategies which can be used by investors as “allocation bricks” according to their market outlook: minimum volatility, mid cap, small cap, growth, value and high dividend. The new ETF offers long-term investors a robust and transparent solution which, by combining different developed markets global equities strategies, allows them to go one step further. The EDHEC Risk Institute Scientific Beta Index aims to outperform the equivalent market capitalisation-weighted index by blending four main risk factors (value, size, low volatility and momentum) with five popular smart beta diversification strategies. (...)"
    Copyright GFM Limited [Full text]


  • Ignites Europe (13/06/2014)
    Amundi unveils first smart beta ETF
    "(...) Amundi has unveiled its first smart beta exchange traded fund tracking an index provided by ERI Scientific Beta. The new fund, dubbed a “multi smart beta ETF”, will track an equal risk contribution index blending four main risk factors – value, size, low volatility and momentum – with five smart beta diversification strategies. The Amundi ETF has been developed as part of the French fund house’s strategic partnership with ERI Scientific Beta, which was agreed earlier this year. The deal resulted in Amundi being granted access to the index firm’s range of smart beta indices in order to develop a suite of smart beta index products and ETFs. Valérie Baudson, global head of ETF and indexing at Amundi, says: “This first multi smart beta ETF launch on Euronext... demonstrates our commitment to innovation at the core of our product development strategy. “This also marks a major step in our smart beta ETF and indexing solutions offering.” (...)"
    Copyright Ignites Europe (a Financial Times service) [Full text - Registration required]


  • ETF Strategy (12/06/2014)
    Amundi launches multi-strategy smart beta ETF
    "(…) Amundi, Europe’s fifth largest provider of exchange-traded funds, has announced the launch of the Amundi ETF Global Equity Multi Smart Allocation Scientific Beta UCITS ETF. Listed on Euronext Paris, the fund offers exposure to a sophisticated multi-factor smart beta strategy with the liquidity and simplicity of an ETF. It is aimed at long-term investors seeking a buy-and-hold global developed markets equities solution. The fund is linked to the SciBeta Developed Multi-Beta Multi-Strategy ERC Index, a strategy index developed by Scientific Beta, the commercial indexing arm of EDHEC-Risk Institute. The index, which is composed of four sub-indices, aims to outperform an equivalent market capitalisation-weighted strategy by intelligently allocating to a range of factors (represented by the sub-indices) that have historically been well-rewarded over the long term. (...)"
    Copyright ETF Strategy Ltd [Full text]


  • ETF.com (12/06/2014)
    Amundi EDHEC ETF Chases Morgan Stanley Launch
    "(...) Amundi has launched a smart beta exchange traded fund (ETF) costing 0.40 percent and it is the first ETF launch in partnership with the EDHEC-Risk Institute. The new ETF listed on 10 June on the NYSE Euronext Paris exchange in euro, British Sterling and US dollar share classes. It tracks the Scientific Beta Developed Multi-Beta Multi-Strategy ERC strategy index, which blends size, low volatility, momentum and value factors, from ERI Scientific Beta, the indexing arm of EDHEC-Risk Institute. The two companies announced their partnership to launch ETFs for the institutional market in February. Morgan Stanley announced this week that it has also brought to market a smart beta ETF with ERI Scientific Beta for the same price. It has a primary listing on the London Stock Exchange and ranks index constituents in equal weight. (...)"
    Copyright ETF.com [Full text]


  • Global Investor (12/06/2014)
    Morgan Stanley issues new ETF on the LSE
    "(...) Morgan Stanley's Fundlogic platform has become the London Stock Exchange's latest exchange traded product (ETP) issuer. The firm launched a smart beta exchange traded product (ETF) on the LSE June 10. The MS scientific beta global equity factors ETF tracks the performance of the Scientific Beta developed, multi-beta multi-strategy equal-weight index. "We're delighted to welcome Fundlogic to the market. Their presence will build on the exciting growth we are seeing in this space as new issuers and index developers continue to innovate in the products and strategies on offer to investors," said Pietro Poletto, head of fixed income at the LSE. (...)"
    Copyright Euromoney Institutional Investor PLC [Full text - Registration required]


  • Private Funds Management (11/06/2014)
    Lack of benchmark hinders infra investment
    "(...) Benchmarking infrastructure investments has become a vital condition to the development of the asset class, according to the EDHEC-Risk Institute. In a position paper published today, the research body argued that the increasing popularity of infrastructure has the potential to help match the supply and demand of long-term capital, improve asset allocation outcomes for investors, forge better prudential regulation and support economic development. Yet for allocations to grow in a sustainable fashion, investors need robust information on the performance they can expect from such investments over time and in various economic environments, it said. Regulators, meanwhile, need to evaluate the risks investors are taking to adequately balance their prudential frameworks. The institute added that the nature of long-term investment in infrastructure meant that extensive data collection, while crucially needed, will not be sufficient and will have to be combined with sophisticated asset pricing and risk measurement tools. The institute thus suggested an eight-step roadmap to reach this desired outcome. At the level of individual instruments, it argued for focusing on defining underlying financial assets, using adequate pricing models for thinly traded instruments, defining data collection needs and standardizing performance reporting to create a global database of infrastructure cash flows. (...)"
    Copyright PEI [Full text - Registration required]


  • ETF Express (11/06/2014)
    Morgan Stanley launches FundLogic UCITS ETF
    "(...) Morgan Stanley is launching the MS Scientific Beta Global Equity Factors UCITS ETF under its FundLogic platform. The ETF, which provides exposure to the Scientific Beta Developed Multi-Beta Multi-Strategy Equal-Weight Index, is the first ETF to be launched between Morgan Stanley and ERI Scientific Beta. This latest addition to the FundLogic platform aims to meet the growing demand from institutional investors to access smart beta indices and factor indices through liquid and transparent products. “We are pleased to provide UCITS investors with access to the Scientific Beta Developed Multi-Beta Multi-Strategy Equal-Weight Index. The index was devised by ERI Scientific Beta, which is an innovative smart beta index provider and an affiliate of the EDHEC-Risk Institute,” says Hitendra Varsani, head of the quantitative and derivative strategies team at Morgan Stanley. “The ETF gives investors exposure to developed market equities and combines smart beta investing and risk factor investing into a single strategy.” (...)"
    Copyright GFM Limited [Full text]


  • Funds Europe (11/06/2014)
    EDHEC: ETF industry wins satisfied customers
    "(…) In the first of a two-part article, Felix Goltz, of EDHEC-Risk Institute analyses the usage of ETFs in Europe and their satisfaction rates. He also looks at the outlook for the success of smart beta. (...) The exchange-traded fund (ETF) industry has undergone rapid growth since inception. The first ETFs appeared in the US in 1989 and they started trading in Europe in 2000. Assets under management of ETFs and other exchange-traded index products in Europe amounted to $395 billion (€289 billion) as at the end of 2013, according to ETFGI. There are a number of studies on the ETF industry in Europe. A key advantage of employing a survey methodology is that we obtain direct information from market participants concerning not only which instruments they currently use, but also how these instruments fit into their overall investment process, and how they are evaluated. Moreover, in addition to current usage, we are able to harness information concerning future plans of investment professionals, which therefore provides an outlook of some possible future industry developments. To summarise the main findings of the study, we will first explain key survey results on the rates of usage and satisfaction with ETFs. We then look at how ETFs are integrated in the investment process and for which purposes they are being used. To address a recent development in the industry, our survey assessed the views investors have about ETFs tracking smart beta indices, which we also summarise below. Finally, we analyse investor expectations of their future use of ETFs and their requests for further product development, which provides some hints with regard to the outlook for the ETF industry. (...)"
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  • Ignites Europe (11/06/2014)
    Morgan Stanley launches smart beta ETF
    "(...) Morgan Stanley has rolled out a smart beta exchange traded fund in Europe following its agreement of a partnership with index provider ERI Scientific Beta. So reports ETF.com. The MS Scientific Beta Global Equity Factors Ucits ETF will track a so-called multi-strategy index provided by ERI Scientific Beta, which ranks stocks in equal weight. The fund has been developed as part of Morgan Stanley’s strategic partnership with ERI Scientific Beta, which was agreed earlier this year. In February the US company signed a global replication licence with the index firm, allowing it to replicate the ERI Scientific Beta indices, as well as access the evaluation tools and tracking methodology used within the indices. (...) Another fund house to recently enter into a partnership with ERI Scientific Beta is France’s Amundi. The deal resulted in Amundi being granted access to the index firm’s range of smart beta indices in order to develop a suite of smart beta index products and ETFs. According to ETF.com, Amundi plans to launch an ETF tracking ERI Scientific Beta’s multi-strategy index in June. (...)"
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  • ETF.com (10/06/2014)
    Morgan Stanley Launches Smart Beta ETF
    "(...) Morgan Stanley has launched its first exchange traded fund (ETF) which tracks a smart beta, equally weighted index from ERI Scientific Beta. The synthetically replicated MS Scientific Beta Global Equity Factors UCITS ETF will be held on Morgan Stanley’s FundLogic platform and managed by Fundlogic SAS. The ETF is domiciled in Ireland and has a primary listing on the London Stock Exchange, with a total expense ratio of 0.40 percent. The underlying index is from ERI Scientific Beta, the indexing arm of French think tank EDHEC-Risk Institute, and is a so-called multi strategy index which ranks stocks in equal weight. (...) EDHEC-Risk Institute announced its strategic partnership with Morgan Stanley and French fund provider Amundi in February. Morgan Stanley has signed a global replication licence, allowing the bank to replicate Scientific Beta indices and share information with all fund counterparties relating to its replication. Noël Amenc, director of EDHEC-Risk Institute and chief executive of ERI Scientific Beta, said: “Through Morgan Stanley’s FundLogic platform, UCITS ETF investors can get exposure to our Strategy in a very efficient way.” Amundi also plans to launch an ETF in June which tracks the EDHEC Risk Institute’s new smart beta "multi-strategy" index. (...)"
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  • The Insurance & Investment Journal (10/06/2014)
    EDHEC-Risk Institute says infrastructure investments require proper benchmarks
    "(...) In a position paper published on June 4, the École des Hautes Études Commerciales Risk Institute (EDHEC) argues that benchmarks for long-term infrastructure investments have become essential in order to help match the supply and demand of long-term capital. The EDHEC argues that long-term investors will be reluctant to make substantial investments without adequate measures of expected performance and risk, namely benchmarks. Developing appropriate infrastructure benchmarks, however, is difficult due to what the EDHEC calls “the heterogeneous and lumpy nature of the underlying assets,” as well as the fact they tend to be illiquid and thinly-traded. In response to the problem the EDHEC Risk Institute has put forward a roadmap suggesting how long-term infrastructure investment benchmarks might be created. “At the level of individual infrastructure equity or debt instruments, we argue for focusing on defining underlying financial assets, using adequate pricing models for thinly traded instruments, defining data collection needs and standardising performance reporting to create a global database of infrastructure cash flows,” explains the EDHEC (...)"
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  • Hedge Fund Intelligence (10/06/2014)
    Morgan Stanley, ERI launch UCITS ETF to tap into smart beta demand
    "(...) Morgan Stanley has unveiled a new UCITS-compliant exchange-traded fund which aims to capitalise on growing demand for smart beta-focused strategies among investors. The fund, known as MS Scientific Beta Global Equity Factors UCITS ETF, is co-launched with ERI Scientific Beta, the smart beta index platform developer affiliated to the Paris-based EDHEC-Risk Institute. (...)"
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  • Infrastructure Investor (09/06/2014)
    Lack of benchmark hinders infra investment boost
    "(…) Allocations to the asset class will rise only if capital holders have access to reliable information on long-term performance, said the EDHEC-Risk Institute. (...) Benchmarking infrastructure investments has become a vital condition to the development of the asset class, according to the EDHEC-Risk Institute. In a position paper published today, the research body argued that the increasing popularity of infrastructure has the potential to help match the supply and demand of long-term capital, improve asset allocation outcomes for investors, forge better prudential regulation and support economic development. Yet for allocations to grow in a sustainable fashion, investors need robust information on the performance they can expect from such investments over time and in various economic environments, it said. Regulators, meanwhile, need to evaluate the risks investors are taking to adequately balance their prudential frameworks. The institute added that the nature of long-term investment in infrastructure meant that extensive data collection, while crucially needed, will not be sufficient and will have to be combined with sophisticated asset pricing and risk measurement tools. The institute thus suggested an eight-step roadmap to reach this desired outcome. (...)"
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  • Ignites Europe (04/06/2014)
    BlackRock's ETF comments played down
    "(...) Exchange traded product providers and Europe’s main markets regulator have played down potential risks in leveraged exchange traded funds after BlackRock chief executive officer Larry Fink said they could “blow up the whole industry”. (...) A 2012 study by France’s EDHEC Risk Institute said “we are not aware of any empirical evidence showing that leveraged or inverse ETFs have played a destabilising role on their underlying markets”. The report added that it was “misguided to term these products complex or opaque” because their returns are “straightforward”. (...)"
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  • Asia Asset Management (June 2014)
    Risk parity portfolio construction
    Article by Lionel Martellini, Vincent Milhau, and Andrea Tarelli
    "(…) Risk parity has become an increasingly popular approach for building well-diversified portfolios within and across asset classes. In a nutshell, the goal of the methodology is to ensure that the contribution to the overall risk of the portfolio will be identical for all constituent assets, which stands in contrast to an equally-weighted strategy that would also recommend an equal contribution but instead simply be expressed in terms of dollar budgets as opposed to risk budgets (see Roncalli (2013) for a formal introduction to risk parity and a detailed discussion of its applications). While intuitively appealing and empirically attractive, this approach suffers from two major shortcomings. On the one hand, typical risk parity portfolio strategies used in an asset allocation context inevitably involve a substantial overweighting of bonds with respect to equities, which might be a problem in a low bond yield environment, with mean-reversion implying that a drop in long-term bond prices might be more likely than a further increase in bond prices. On the other hand, standard approaches to risk parity are based on portfolio volatility as a risk measure, implying that upside risk is penalised as much as downside risk, in obvious contradiction with investors’ preferences. (…)"
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  • Les Echos (04/06/2014)  
    Les hedge funds se préparent à une séance agitée sur l’euro-dollar
    "(...) En 2012 et 2013, les fonds global macro n’ont progressé que de 3,5 % par an selon les indices de l’EDHEC Risk, pour un rendement de long terme de 6,2 %. Cette année, même les références sur cette stratégie, les hedge funds Brevan Howard, Caxton ou Moore, sont en difficulté. C’est aussi le cas des fonds quantitatifs « CTA », qui essayent de capter des tendances sur les marchés, dont les changes. (...)"
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  • Financial News (04/06/2014)
    ETF execs push smart beta at industry event
    "(...) According to delegates, several providers have switched their focus from ETFs which track cap-weighted indices to specialist products which replicate the performance of different investment factors such as value, growth and low volatility. Such techniques, called factor investing, have become better known as smart beta. Academic studies suggest smart beta factors beat cap-weighted indices over time, although they can underperform over certain periods. (...) Some providers, such as MSCI and EDHEC-Risk, have put together different styles into multi-factor products in a bid to make performance more consistent. (...)"
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  • IPE (04/06/2014)
    Wednesday people roundup
    "(…) ERI Scientific Beta, the smart beta index unit of the EDHEC-Risk Institute, has announced the make-up of its international executive management team covering Boston, London, Nice, Paris, Singapore and Tokyo. The team consists of Noël Amenc, Lionel Martellini, Patrice Retkowsky, Reynald Mauguin, Mélanie Ruiz, Candice Lebastard, Felix Goltz and Peter O’Kelly. (…)"
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  • Institutional Asset Manager (03/06/2014)
    ERI Scientific Beta names executive management team
    "(...) ERI Scientific Beta, the smart beta index provider offshoot of EDHEC-Risk Institute, has named its international executive team covering the ERI Scientific Beta locations in Boston, London, Nice, Paris, Singapore and Tokyo. Noël Amenc, PhD, is member of the ERI Scientific Beta management board and CEO. (...) Lionel Martellini, PhD, is member of the ERI Scientific Beta management board and senior scientific advisor. (...) Patrice Retkowsky is member of the ERI Scientific Beta management board and head of production. (...) Reynald Mauguin is member of the ERI Scientific Beta management board and head of operations, IT infrastructure and the data quality assurance programme. (...) Mélanie Ruiz is member of the ERI Scientific Beta management board and head of client services. (...) Candice Lebastard is member of the ERI Scientific Beta management board and head of data acquisition. (...) Felix Goltz, PhD is member of the ERI Scientific Beta management board and head of research. (...) Peter O’Kelly is member of the ERI Scientific Beta management board and head of marketing and communications. (...) ERI Scientific Beta has also announced the line-up of its international business development and product support team. Erik Christiansen, CFA is business development manager, Europe with ERI Scientific Beta. (...) Marc Zieger is business development director, North America with ERI Scientific Beta. (...) Paul Hoff is business development director, Asia-Pacific with ERI Scientific Beta. (...) Eric Shirbini, PhD, is global product specialist with ERI Scientific Beta. Prior to joining EDHEC-Risk Institute. (...)"
    Copyright GFM Limited [Full text]


  • NEWSManagers (02/06/2014)  
    ERI Scientific Beta lance des stratégies intelligentes
    "(…) L'entité ERI Scientific Beta (EDHEC-Risk Institute) vient de lancer ses indices multi-Beta Multi- Stratégie (MBMS), disponibles sur la plate-forme www.scientificbeta.com. L'objectif de ces stratégies est de répondre favorablement aux deux principales limites des indices pondérés par la capitalisation, à savoir des expositions mal adaptées à des facteurs de risques systématiques et une concentration excessive dans un petit nombre de titres. Dans le détail, les indices Multi-Beta Multi-Stratégies fournissent des allocations pour une sélection de facteurs de risque du marché des actions ( valeurs, momentum, faible volatilité, ... ) qui sont bien rémunérés sur le long terme. Pour chaque facteur, ERI Scientific Beta applique des méthodes de pondération "intelligentes" pour établir une sélection de valeurs. Au terme de cette sélection, il ressort que les indices ne sont pas seulement exposés au facteur retenu, mais affichent également une bonne diversification. L'offre multi- Beta Multi-Strategy se distingue également par l'absence de corrélation du fait que les différents facteurs considérés correspondent à des cycles économiques différents. Sur le long terme, l'approche multi-Beta Multi-Strategy permet d'enregistrer une surperformance de près de 4 % par rapport à la performance d'un indice capi-pondéré classique, avec un ratio de Sharpe de 115 %. (…)"
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  • IPE (June 2014)
    Top 400 Asset Managers: Smart factor investing
    Article by Noël Amenc, professor of finance at EDHEC Business School, director at EDHEC-Risk Institute and CEO of ERI Scientific Beta
    "(…) The smart-factor, multi-strategy approaches that we have developed, which consist, for a given factor tilt, of proposing a portfolio of five different weighting schemes, enable all of the non-rewarded risks associated with each of the weighting schemes to be well diversified. It is this quality of double diversification proposed and conceptualised as ‘diversification of the diversifiers’ that leads us to consider that smart-factor, multi-strategy indices are flagship indices representing elementary building blocks for risk allocation. This type of smart beta approach is, in our view, the new frontier for the construction of benchmarks that are representative of an efficient allocation to factors. The gains in terms of risk-adjusted returns of smart-factor indices compared with traditional factor index offerings are considerable. As such, on average over the long run (40 years) for US data, smart-factor, multi-strategy indices outperform cap-weighted factor indices by 68%. (…)"
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May 2014

  • Risk.net (28/05/2014)
    Six Swiss Exchange launches SPI Select Dividend Index
    "(...) A majority of European institutional investors support greater regulation of the index business based on governance and transparency concerns. The findings by EDHEC-Risk Institute show that only about a third of respondents are very or somewhat satisfied with the current level of transparency in the indexing industry. An overwhelming majority of respondents, 85%, identified transparency as the best mitigator of conflicts of interest while only 12% view good index governance as sufficient to deal with these conflicts. (...)"
    Copyright Incisive Media Investments Limited [Full text - Registration required]


  • Top1000Funds (28/05/2014)
    Evolution in risk reporting for sophisticated institutional investors
    Article by Lionel Martellini, Romain Deguest, and Tiffanie Carli
    "(...) Risk reporting is increasingly regarded by sophisticated investors as an important ingredient in their decision-making process, authors from EDHEC argue that the effective number of (uncorrelated) bets could be a useful risk indicator to be added to risk reports for equity and policy portfolios. (...) In recent research produced with the support of CACEIS as part of the research chair at EDHEC-Risk Institute on “New Frontiers in Risk Assessment and Performance Reporting,” we focused on analysing meaningful measures of how well, or poorly, diversified a portfolio is, exploring the implication in terms of advanced risk reporting techniques, and assessing whether a relationship exists between a suitable measure of the degree of diversification of a portfolio and its performance in various market conditions. (...)"
    Copyright Conexus Financial Pty Ltd. [Full text]


  • ETF Strategy (27/05/2014)
    ERI Scientific Beta unveils multi-factor smart beta indices
    "(…) ERI Scientific Beta, the smart beta indexing initiative spun out off EDHEC-Risk Institute, a Paris-headquartered financial research centre, has announced the launch of the SciBeta Multi-Beta Multi-Strategy Indices. The indices endeavour to address two potential limitations of market capitalisation-weighted indices, namely ill-suited exposures to systematic risk factors and excessive concentration in a small number of stocks. The indices provide allocations to a selection of equity market risk factors – value, momentum, size and low volatility – that are very well rewarded over the long term. Within each factor tilt, ERI Scientific Beta applies a “smart” weighting methodology to selected stocks so that the indices are not only exposed to the relevant factor, but also well diversified. The indices also benefit from the lack of correlation between the premia associated with these factors, because they correspond to different economic cycles. While in practice many investors choose specific factor exposures according to their investment beliefs, objectives and constraints, the benefits of multi-factor allocations by way of an equal-weighted or equal relative risk contribution allocation are sizable, according to ERI Scientific Beta. (...)"
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  • ETF Express (27/05/2014)
    ERI Scientific Beta launches multi-beta multi-strategy indices
    "(...) ERI Scientific Beta has launched Multi-Beta Multi-Strategy (MBMS) indices, which are now available on the www.scientificbeta.com platform. (...) Over the long run, the Multi-Beta Multi-Strategy approach enables the benefits of smart beta to be doubled, with excess performance compared to the cap-weighted index of almost four per cent per year and a gain in Sharpe ratio of 115 per cent. Noël Amenc, CEO of ERI Scientific Beta, says: “Multi-beta multi-strategy indices allow equity investors to expand their opportunity set beyond the standard equity premium. These indices of indices are effective entry points for asset owners who wish to dispose of a robust and proven asset allocation solution.” (...)"
    Copyright GFM Limited [Full text]


  • Financial News (26/05/2014)
    Smart beta: A new investment idea on the menu
    "(...) For decades asset managers faced a simple choice. The expensive option was active fund management – like eating at a Michelin-starred restaurant it can be delicious (as long as the chef performs on the night) but the bill is high. Or they could use index-tracking products – the investment equivalent of eating at McDonald’s: basic fare at rock-bottom prices. There’s a huge gap between these two options. So it’s no surprise that when a new strategy comes along that could offer Michelin-starred cuisine at close to McDonald’s prices, investors have been hungry to try it. This option is known as “smart beta”, and it’s the hottest buzzword to hit asset management in decades. (...) The big losers are active managers, according to Eric Shirbini, global product specialist at financial research institute EDHEC-Risk. He is out to take on active managers through a smart beta exchange-traded fund in association with Amundi Asset Management. (...)"
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  • Financial News (26/05/2014)
    The smart beta debate
    "(...) This has become such a problem that Europe’s EDHEC Risk academic institute wrote to Sharon Bowles MEP in March to demand that regulators apply closer scrutiny to smart beta financial benchmarks, forcing fund managers and index developers to disclose what is in these indices. (...) The smart beta revolution has spread to the world of exchange-traded funds, drawing further attention to its superior returns. Amundi Asset Management confirmed last week that it would team up with data provider EDHEC-Risk to create an ETF that takes account of multi-factor smart beta. Through a back-testing exercise, EDHEC argues factors driven by value, smaller cap, momentum and low volatility have beaten cap-weighted indices by an annualised 3.9 percentage points over 40 years. (...)"
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  • Risk.net (22/05/2014)
    Europe set to be key battleground for index providers
    "(...) The Nice, France-based EDHEC-Risk Institute, for instance, has developed a methodology combining factor tilts such as value, momentum and low risk with smart weighting to avoid concentration risk. The institute has had some success selling its indexes into segregated funds and dedicated mandates, but has yet to break into the mainstream ETF space. "I think it's essentially a question of the maturity of the market," says EDHEC's head of applied research, Felix Goltz. "What we have seen in the US is that institutional investors adopt these strategies through dedicated mandates and they are then rolled out in ETFs, and I expect we will see the same development in Europe." (...)"
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  • ETF.com (20/05/2014)
    Amundi Plans First ETF Launch With EDHEC
    "(...) Amundi plans to launch an exchange traded fund (ETF) in June which tracks the EDHEC Risk Institute’s new smart beta "multi-strategy" index. Amundi and ERI Scientific Beta, the index arm of the EDHEC Risk Institute, announced a partnership to launch ETFs for the institutional market using EDHEC’s indexes in February. EDHEC’s new so-called multi-beta, multi-strategy indexes roll four strategies into one index: value, momentum, mid cap stocks and low volatility. The first ETF to track this composite index will be from provider Amundi in June, subject to regulatory approval. (...) Turnover costs in this index will be reduced by around 20 percent, according to Eric Shirbini, global product specialist at ERI Scientific Beta, as the four strategies in the index will “buy and sell stocks from each other” as opposed to going into “the outside world” to rebalance. (...) Shirbini said the second advantage of the composite index is performance, and the four strategies would outperform and underperform at different times, resulting in “smoother” performance over time. “That makes it easier for people to invest in smart beta,” he said. (...)"
    Copyright ETF.com [Full text]


  • Portfolio Adviser (19/05/2014)
    Finding alpha among the mega-caps: a systematic approach
    "(...) But which factors matter the most when it comes to working which large/mega caps to buy for a fund or portfolio? The most systematic attempt to answer this challenge has come from the French business school EDHEC. Their Scientific Beta project (at www.scientificbeta.com) has identified a wide range of factors using a 40 year slug of data from the US equity markets. This analysis focuses on the largest 500 stocks in terms of market cap - EDHEC have then chosen to focus their analysis on four main factor strategies: Low volatility based on weekly returns over past two years; Value - book to market ratio; Momentum - cumulative return over the past year relative to wider market; The size effect - smaller companies based on market cap tend to outperform over the longer term. In the EDHEC series of factors this involves a mid cap rather than small cap bias. But EDHEC also adds in another crucially important layer of ‘stock selection’ - rather than looking to eliminate certain stocks using a factor bias, they look to achieve maximum ‘diversification’ between different stock “risks”. Five main diversification strategies feature in the EDHEC Scientific Beta approach, all based around an alternative approach to simply market cap weighting an index. (...)"
    Copyright Last Word Media Limited [Full text]


  • L'Agefi Suisse (19/05/2014)  
    Amundi se joint à l’EDHEC Risk Institute dans l’aventure des ETF intelligents
    "(...) À peine les fonds indiciels cotés (ETF) de type Smart Beta commencent-ils à se frayer un chemin dans la finance mainstream que l’on parle déjà du Smart Beta 2.0. Encore plus «intelligent» que le 1.0, dès lors qu’ils intègrent plusieurs facteurs de risque (et non plus un seul) dans la construction d’une même référence sous-jacente. Pour mémoire, le terme «beta» renvoie au lien existant entre le degré d’exposition d’un actif à tel ou tel type de risque et son rendement. Or le smart beta vise une utilisation «intelligente» des facteurs de risque. Leur intérêt s’explique par l’accès direct et bon marché à des stratégies qui n’étaient jusque-là accessibles qu’à travers des fonds traditionnels gérés activement. L’autre élément venu renforcer l’émergence des ETFs smart beta 2.0 est que les fonds indiciels cotés de la génération précédente trackent des indices dont les constituants sous-jacents sont pondérés en fonction de la capitalisation boursière. Les grandes entreprises sont ainsi largement surpondérées, sans forcément être plus performantes. Parmi les facteurs que l’investisseur peut intégrer dans l’ETF, citons les plus populaires, tels que la volatilité (minimum vol. ETFs), les fondamentaux, la diversification ou encore la parité des risques. «L’allocation multi smart beta se décline généralement par une approche basée sur des signaux de marché dynamique ou par une approche d’allocation systématique», précise Eric Shirbini, Spécialiste Produit pour l’ERI (EDHEC Risk Institute) Scientific Beta, de passage à Genève la semaine dernière, lors d’un Roadshow européen organisé conjointement avec Amundi. En effet, Amundi, un des leaders mondiaux de la gestion d’actifs, et ERI Scientific Beta, ont conclu un partenariat stratégique pour combiner l’expertise du fournisseur d’indice Smart Beta, avec celle d’Amundi dans la réplication d’indices et la gestion d’ETF. (...)"
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  • ETF.com (19/05/2014)
    ERI Scientific Beta Launches Smart Beta Indexes
    "(...) ERI Scientific Beta, the indexing platform of EDHEC Risk Institute, has expanded its offering with the launch of 72 smart beta indexes. The Multi-Beta Multi-Strategy Indices – as EDHEC refer to them - were launched on 30 April and are designed to avoid some of the pitfalls market capitalisation-weighted indices suffer from, such as over concentration and exposure to systematic risk factors. The indexes follow several strategies – value, momentum, size and low volatility – to ensure they are well diversified. Investors can also choose between two weighting strategies. Equal weight (EW) holds all underlying holdings in equal proportion in order to boost the Sharpe ratio, which measures risk-adjusted performance. Equal risk contribution (ERC) looks more closely at tracking error and makes sure no strategy outweighs the other. A note from ERI Scientific Beta reads that investors can judge the indices’ long term performance based on 40 years of back-tested data. It also shows that their ERC and EW strategies delivered less volatility and a higher Sharpe ratio than a broad market cap weighted strategy over 10 years. (...)"
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  • Financial News (19/05/2014)
    Putting the smart into smart beta
    "(...) French academic institute EDHEC-Risk has compiled several smart beta indices. It reckons that allocations biased to low volatility, momentum, value and mid-cap styles can produce top-decile performance over time. ETFs tracking smart beta indices are also gaining traction, not least because they can track smart beta indices nearly as tightly as cap-weighted styles. Noël Amenc, professor of finance at EDHEC, argues ETFs play a crucial role in testing whether or not smart beta indices are efficient. This is because illiquid constituents make it harder for traders to arbitrage between the value of an ETF and its underlying portfolio. This widens the price discount and makes ETFs less attractive. (...)"
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  • L'Agefi Suisse (19/05/2014)  
    L’excédent de rendement peut atteindre plus de 4%
    "(...) Le gestionnaire d’actifs Amundi accorde un poids extrêmement important à la référence scientifique de la construction de ces produits. Ses ETF n’y échappent pas, en particulier s’agissant des ETFs Smart Beta. C’est pourquoi celui-ci s’est joint à l’ERI Scientific Beta (à l’EDHEC Risk Institute), avec pour objectif de combiner leurs expertises respectives, professionnelles et académiques. Partenariat qui se traduit par le développement de solutions d’investissements Smart Beta, ainsi que leur promotion auprès d’une large base de clients institutionnels. La mission du smart beta consistera, d’une part, à sélectionner les titres étant le plus exposés au(x) facteur(s) de risque spécifique(s) et, d’autre part, à pondérer les risques d’une façon qui évite les biais indésirables. (Ceci en fonction des attentes et vues particulières de chaque investisseur). Des biais tels que ceux que présentent les indices par capitalisation boursière. «Nous voulons donner une ossature et une rigueur scientifique au smart beta, dès lors que l’émergence de cette industrie rend la sélection des produits les plus performants d’autant plus difficile pour les investisseurs», précise Eric Shirbini. Il fait parti d’une équipe de près de 40 personnes au sein de l’ERI Scientific Beta, en coopération directe avec la société de gestion Amundi, également l’un des principaux fournisseurs d’ETFs en Europe. (...)"
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  • Hedge Fund Journal (16/05/2014)
    ERI Scientific Beta launch new indices
    "(...) ERI Scientific Beta has announced that as of 30 April 2014 it has extended its smart beta indices offering to include a series of multi smart factor indices. These indices allow investors to benefit from: The performance of Scientific Beta's smart factor indices, which represent exposures to selected risk factors that are well-rewarded over the long term (Low Volatility, Mid Cap, Value, High Momentum), together with strong diversification of the specific or non-rewarded risks; The allocation to decorrelated sources of risks that are representative of robust methods of diversifying between smart factor indices through equal-weighting and equal risk contribution allocations. The equal-weighting allocation is part of a robust diversification perspective in absolute terms whilst the equal risk contribution approach is a relative risk allocation, aiming to equalise the contribution of each index to the tracking error risk. Long-term evaluation (40 years) of this offering shows that the excess annual return in relation to the cap-weighted equivalent is almost 4% and that the improvement in the Sharpe ratio is on average 113%. (...)"
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  • FTfm (13/05/2014)
    Amundi fires as ETF price war intensifies
    "(...) Amundi has joined the “price war” among exchange traded fund providers in Europe with the announcement on Tuesday that it has cut fees on its emerging markets ETF range. (...) Ms Baudson has also promised that Amundi will expand its range of “smart beta” ETFs after a strategic partnership was announced in February with the Nice-based EDHEC-Risk Institute to create new products for the institutional market. (...)"
    Copyright Financial Times Fund Management [Full text]


  • ETF Express (May 2014)
    Special Report - Smart Beta 2014: Institutional interest drives growth
    Smart Factor Investing, article by Noël Amenc, EDHEC-Risk Institute
    "(...) By proposing indices with contrasting factor exposures that correspond notably to factors whose reward is well documented in the academic asset pricing literature (value, momentum, size) or to anomalies that correspond more to an approach that is behavioural or explained by limitations (e.g. a leverage constraint) that prevent rational agents from acting in an optimal manner, ERI Scientific Beta allows investors to distance themselves from the poor factor exposure of cap-weighted indices. By associating an effective choice of weighting scheme in terms of diversification with this choice of factors through stock selection, ERI Scientific Beta also allows the defect of the strong concentration of cap-weighted indices to be remedied in favour of sound diversification that aims to provide the best return for a given level of risk (Sharpe ratio). The concern for the diversification of smart factor indices proposed by ERI Scientific Beta allows their non-rewarded or specific risks to be reduced. (...)"
    Entering ‘second phase’ of smart beta, article by Valérie Baudson, Amundi
    "(...) With an existing range of single strategy ETFs and strong capabilities in tracking customised indices in mandates, we are now entering a new era of smart beta development. As the first step in this direction, we have recently partnered with EDHEC-Risk Institute and Scientific Beta teams to create a multi smart beta index that can be replicated either as an index mandate or in ETF format. This strategy index combines a selection of four factors which are expected to produce performance over the long term – low volatility, valuation, size, momentum – with five smart beta strategies, and aims to provide improved risk-adjusted performance compared to a cap-weighted index. More broadly, the objective of this partnership is to offer tailor-made index investment solutions by combining Amundi’s know-how in index replication and ETF construction and ERI Scientific Beta’s expertise in the design of smart beta indices (ERI’s ‘Smart Beta 2.0’ platform provides access to nearly 3,000 indexes with transparency). (...)"
    Copyright GFM Limited [Full text]


  • Commodities Now (May 2014)
    Index Transparency – a Survey
    "(...) Between August and November 2013, EDHEC-Risk Institute surveyed institutional end-investors across Europe on their perceptions and expectations with respect to the governance and transparency of indices. The survey’s 109 respondents include Europe’s largest pension and reserve funds, insurance and provident institutions and their asset management subsidiaries. Hailing from 20 countries and dependencies, respondents collectively provide protection to hundreds of millions of scheme participants and clients in Europe and beyond. To the best of our knowledge, this is the first survey of this scale giving the opportunity for end-users to have their voices heard in a debate that is being held in their name. In the context of the recent consultations on the regulation of financial benchmarks, index providers have petitioned regulators to curtail transparency requirements explaining that they were not aware of any transparency issue across the industry, that they already had strong incentives to offer the best transparency to the market and that the provision of more granular information would not only be useless to investors but could also be potentially harmful to them. The survey documents that end-users are not particularly impressed by the current level of transparency in the indexing industry–only about a third of respondents are very (4.6%) or somewhat satisfied (30.3%) with it–and shows that investors strongly support higher standards of index transparency. (...)"
    Copyright Isherwood Production Ltd. [Full text]


  • FTfm (04/05/2014)
    Market divided over smart-beta success
    "(...) The “smart beta” bandwagon appears to be gathering pace amid growing demand for innovative passive investment strategies to replace active management. (...) EDHEC-Risk, the French research institute that is seeking to establish a presence as an index provider, points out that there are hurdles to the wider adoption of smart-beta strategies. EDHEC recently surveyed 128 investment managers with assets of $4.4tn and found evidence of concerns about the robustness of any outperformance by smart-beta strategies. EDHEC also found that respondents cited worries about returns being affected by capacity limitations and high portfolio turnover. Fears regarding a shortage of independent research and a lack of information about the risks of smart-beta strategies were also highlighted. (...)"
    Copyright Financial Times Fund Management [Full text]


  • Money Observer (01/05/2014)
    What are smart beta funds?
    "(...) However, academic research suggests smart beta funds have, at least in the past, consistently outperformed traditional passive vehicles; and that also means they've tended to beat the average actively-managed fund. In a study published in February by the EDHEC Risk Institute, the outperformance identified was significant. It reported "excess annual performance over broad cap-weighted indices ranging from 1.54 per cent to 3.00 per cent since inception {in 2002} for the developed universe". (...)"
    Copyright Money Observer [Full text]


April 2014

  • Funds Europe (April 2014)
    EDHEC: The LDI Paradigm
    "(…) The Liability-Driven Investing (LDI) paradigm that has arisen over the past two decades is a general investment framework that advocates the allocation of pension fund assets to two distinct portfolios: a performance-seeking portfolio and a liability-hedging portfolio, in addition to residual long or short investments in cash. Research conducted at EDHEC-Risk Institute since 2008, in the context of the research chair sponsored by BNP Paribas Investment Partners, has outlined a number of important implications of this paradigm for the asset-liability management (ALM) of pension funds. In a nutshell, the main insight is to emphasise the benefits of dynamic forms of LDI strategies, which imply that the split between the risky performance-seeking component and the safe liability-hedging component should evolve over time as a function of changes in market conditions and also as a function of prudential risk budgets defined by the regulators, who have increased their focus on the respect of minimum funding ratio levels. In particular, such strategies are shown to allow for the respect of minimum funding ratio constraints with substantially lower opportunity costs compared to static LDI strategies. Having documented the benefits of the LDI paradigm and its extensions from a theoretical perspective, we have attempted through a recent survey to assess the views of pension funds, ALM consultants and sponsor companies as they relate to their reactions to dynamic LDI strategies and their desire to integrate this approach into their processes. (...)"
    Copyright Funds Europe [Full text - Registration required]


  • Top1000Funds (30/04/2014)
    Investors ignore liability matching at their peril
    "(...) "But few funds have been adopting this approach, and now a new study by EDHEC-Risk Institute reveals that pension funds are focusing too much on asset management and not paying enough attention to liability management. The study finds only 50 per cent of pension funds surveyed hedge their liabilities, while the rest of the respondents are sitting on the sidelines. One of main findings from the study is that many pension funds have an asset-only perspective, says one of the authors, Vincent Milhau, who is deputy scientific director of EDHEC-Risk Institute. Between November last year and January 2014, 104 investors from Europe, North America and Australia, the majority of which were defined benefit, were surveyed to determine how liability-driven investing is used in practice and the reasons that motivate the adoption or non-adoption of such techniques. “The results were definitely surprising to us, we expected them to have some kind of ALM and to care about performance of the asset side relative to liabilities. But we found some funds don’t measure the liability risk at all,” Milhau says. The survey found that only slightly more than 50 per cent of the respondents explicitly measure liability risk through a probability of a shortfall or the magnitude of this shortfall. (...)"
    Copyright Conexus Financial Pty Ltd. [Full text]


  • ETF.com (25/04/2014)
    ERI Scientific Beta Debuts Indexes
    "(...) ERI Scientific Beta launched a range of smart-beta indexes in February that provide access to various risk strategies in developed countries. The so-called smart factor indexes are built on the ERI Scientific Beta platform by investors. Investors pick their geography and one of 24 “risk tilts”; for example, high momentum, which defines the stock selection. The stocks are then weighted by taking the average weighting from five strategies: maximum deconcentration, minimum variance, diversified risk weighting, maximum Sharpe ratio and maximum decorrelation. According to the firm, this results in diversification from a weighting perspective and a strategy perspective. In total, 216 new indexes will be launched across nine regions, multiplied by 24 different kinds of stock selection. All developed-world countries will be included in the new index range, with benchmarks targeting the U.S., U.K., eurozone, developed Europe ex-U.K., Japan, developed Asia-Pacific ex-Japan and several other developed countries. (...)"
    Copyright ETF.com [Full text]


  • ETF.com (24/04/2014)
    IOSCO's Index Guidelines: What Will Change?
    "(...) Frederic Ducoulombier, director at EDHEC Risk Institute–Asia, said it is business as usual for your average equity indices, as most of the governance and accountability rules already in place. “The Principles introduce positive advances with respect to quality of benchmark and methodology.” However, he argued that the index providers managed to convince IOSCO that they were subject to intense competitive pressures and as such were providing the best transparency to the market. “The standards for adequacy have been watered down by IOSCO so that summary information and key features are now the standard.” (...)"
    Copyright ETF.com [Full text]


  • IPE (25/04/2014)
    European pension funds failing to implement true LDI, EDHEC warns
    "(…) Despite awareness of liability-driven investment (LDI), pension funds are failing to truly adopt the model, with only half operating a split between performance-seeking and liability-hedging portfolios, according to the EDHEC-Risk Institute. In a survey of 104 mainly European investors, EDHEC found that 80% were fully aware of the LDI strategy. The institute described the paradigm as creating two distinct portfolios within pension funds, one for performance and access to risk premia and the other to hedge against impacts on liability values. However, its research found that only half of respondents implement a formal separation of the two portfolios. It also singled out the UK and Denmark, where most responding pension funds adopted a clear distinction and 44% of respondents said it simplified the portfolio-construction process. The survey also found pension funds often measure liability risk but do not put in any formal hedges against it. One-fifth of respondents did not measure liability risk. “This is still a worryingly high percentage, given that this measurement is an essential part of a sound asset-liability management (ALM) process,” the report said. (…)"
    Copyright IPE [Full text - Registration required]


  • aiCIO (22/04/2014)
    The Smart Beta Tragedy
    "(...) “Costs have come down a lot over the past five years,” says Felix Goltz, head of applied research at the EDHEC-Risk Institute, a smart beta think tank and index developer. “That said, providers don’t offer much information publically, and the costs will differ among investors. Licensing costs for smart beta indexes should be no more expensive than cap-weighted. With increasing competition, costs have clearly dropped over time.” Aside from licensing an index from the likes of EDHEC or customizing one, investors can also access smart beta through exchange-traded funds (ETFs). (...) In Goltz’ experience, custom indexing makes sense for institutions, like UPS, that seek smart beta exposure within specific parameters. “If the institution has a certain liquidity requirement, sector exclusions, or environmental, social, and governance screens, a standard product may not be relevant,” he says. “For example, a corporate pension plan sponsored by a major oil company would likely prefer to avoid over-concentration in that area.” (...)"
    Copyright Asset International [Full text]


  • The Wall Street Journal (18/04/2014)
    Floating a Few Cents to Investors
    "(...) "Investors who want steady income are used to scrounging around trying to squeeze a little more cash flow out of their securities. Now Uncle Sam is coming to their aid. In January, the U.S. Treasury began issuing floating-rate notes or FRNs, the first major innovation in U.S. debt since inflation-protected securities were introduced in 1997. (...) The FRNs are probably most suitable for investors who are “trying to get a better interest rate over a specific time period,” says Frank Fabozzi, a bond expert who teaches finance at EDHEC Business School in Paris and Princeton University. If you know you will need a sizable amount of cash in two years and are worried that interest rates might rise in the interim, the FRNs could make good sense. (...)"
    Copyright Dow Jones & Company, Inc. [Full text]


  • Ignites Europe (17/04/2014)
    ETF market deflects systemic risk criticism
    "(...) Exchange traded fund providers and industry experts have rejected accusations that a rise in the number of investors piling into passive strategies poses a systemic risk to financial markets. A recent speech given by one of the UK’s most senior bankers has reignited the debate about ETFs and their potential to cause market disruption. (...) Noel Amenc, director at the EDHEC Risk Institute, adds that the speech by Mr Haldane “assumes that all ETFs are trackers of the same indices”, which is not the case given the rise of so-called “smart” indices. “The increased diversity of forms of indices does not provide support for {Mr Haldane’s} argument,” says Mr Amenc.(...)"
    Copyright Ignites Europe (a Financial Times service) [Full text - Registration required]


  • Citywire Wealth Manager (16/04/2014)
    Hedge fund ETF usage spikes – as satisfaction slumps
    "(…) The EDHEC-Risk Institute’s latest survey of European investors in exchange-traded funds (ETFs) has revealed that the popularity of hedge fund products in the space has simultaneously jumped and slumped. 2013 was a good year for hedge fund ETFs in terms of their take-up by investors: their usage rose by 14.8% to a record high – above 40% – since the institute began its survey. But conversely user satisfaction with hedge fund ETFs dropped from more than 50% in 2012 to just above 30%, the worst score since 2009. It is below even the satisfaction rating from 2011, when the db Hedge Fund index lost 6.7%. Last year it rose by 7%. In both years, though, it lagged the MSCI World index. The survey – of 207 European investors, two-thirds of whom work for firms managing more than €1 billion (£825 million) – suggested that ETF satisfaction is more closely associated with the funds’ liquidity than their performance. Satisfaction rates for hedge fund and property ETFs, for example, have oscillated between 30% and 60% and between 50% and 95% respectively over the past seven years. In contrast, satisfaction rates for equity and government bond ETFs have remained consistently around 90% and 80% respectively through that period. EDHEC-Risk – an arm of the French business school – attributed this to the fact that two of the principal attractions of ETFs are their liquidity and relatively low levels of mispricing, both of which are determined by the liquidity of the underlying assets. In essence, then, satisfaction with the actual ETF depends on it doing what it is expected to do, not the performance of the underlying asset class. (…)"
    Copyright Citywire [Full text]


  • Asset International (15/04/2014)
    ‘No Consensus’ on Smart Beta Fixed Income Methods
    "(...) Smart beta may be on the agenda for institutional investors across the world, but fixed income smart beta strategies have yet to take off. Felix Goltz, head of applied research at EDHEC-Risk Institute, told aiCIO that while investors were keen to look at smart beta strategies for their fixed-income portfolios, most were left unimpressed by the current crop of offerings. “There’s no clear consensus on the methodology to be used… {and} there are lots of investors who see the shortcomings of simply applying smart beta equity methodology to fixed income,” he said. Managers which have developed fixed income smart beta indices tend to use methodologies developed for equity strategies, but investors “aren’t that convinced that it would work in the same way”, according to Goltz. “Take minimum volatility: in equities the first effect is to lower the volatility of the index by focussing on low volatility and less risky stocks. But if you apply this to fixed income it makes much less sense—the low volatility approach would lead you to selecting lower volatility bonds, which would mean the portfolio would be heavily skewed towards short-term bonds from the least risky issuers – most likely the US, Australian or Norwegian gilts, given they issue ones that mature in six months,” Goltz explained. Investors have been concerned about the lack of diversification within such a strategy, particularly given they can be skewed by what’s happening in the wider market. (...)"
    Copyright Asset International [Full text]


  • FT Adviser (14/04/2014)
    ETPs’ popularity spawns a proliferation of acronyms
    "(...) However, the exchange-traded industry is not content with equities, fixed income, commodities and debt. The results of the EDHEC European ETF Survey 2013 suggest product development within certain asset classes has driven increases in ETF usage, notably within real estate, hedge funds and infrastructure. The findings also noted that 39 per cent of the respondents were interested in further development in ETFs based on smart beta indices. In a market with so much potential, particularly in the UK and Europe, the next innovations in the passive market seem to be just around the corner. (...)"
    Copyright FT Investment Adviser [Full text]


  • Investment Week (14/04/2014)
    The Contrarian Investor: Hold on to your anoraks
    "(…) In the absence of this focused, approach, the best bet is to be properly diversified between different kinds of shares, while also making sure you are not invested in a small number of positively ‘dangerous’ equities. It is this latter, hugely important insight which was the central revelation of the EDHEC event. The academics at this venerable institution have been running a number of alternative stock market indices that look and feel very different from traditionally market cap weighted structures such as the FTSE 100 and the S&P 500. EDHEC’s economists argue that, actually, these mainstream indices have a very concentrated set of risks, because you are, in reality, investing heavily in a certain type of very large company in terms of market cap. They argue that a smarter approach (called Scientific Beta) is to pick different factors that have been shown to produce outperformance over the long term, namely value stocks, or stocks showing strong momentum plus, of course, smaller cap companies. Newer ‘factors’ have also emerged, such as excluding stocks with higher volatility, but the net effect is the same – however you slice and dice a traditional index, by focusing on traditional factors, you end up improving total returns versus the ‘traditional’ index. (…)"
    Copyright Incisive Media Investments Limited [Full text - Registration required]


  • AsianInvestor (09/04/2014)
    Asset owners pressurising index providers
    "(…) The regulation of smart beta in Europe falls within the wider rules about passive investment. And investors are impatient for greater transparency, according to research presented at the same conference by Frédéric Ducoulombier, professor of finance at EDHEC Business School. Between August and November, EDHEC surveyed 109 institutional investors from across Europe, including Europe's largest pension and reserve funds, insurance firms and their asset management subsidiaries. Some 85% of respondents said transparency is the best way to mitigate conflicts of interest - and only 12% view good index governance as sufficient to deal with these conflicts. The survey revealed frustration at current levels of transparency in index funds: only 4.6% of respondents were "very satisfied". The result was less confidence in new indices, including the wave of smart-beta products that have come to market: 81% said the credibility of reported track records, especially when it came to newer types of index, was undermined by providers' capacity. (…)"
    Copyright Haymarket Media Ltd. [Full text - Registration required]


  • Barron's (05/04/2014)
    The New Indexing
    "(…) The argument for alternative indexing is compelling: By weighting securities by market value, the index tends to overweight larger stocks, which may be overvalued, and slight those that are smaller and have lagged. It also can result in a concentrated portfolio -- like when Apple got so big in 2012 that it made up 5% of the S&P 500. "You think you are holding something neutral but are instead holding a tilt to large-cap and growth stocks," says Lionel Martellini, a finance professor at European business school EDHEC. "Research has shown that it is the wrong tilt; value and small-cap stocks have a higher return." (...) The simplest version of alternative indexing is equal weighting, an approach EDHEC's Martellini describes as "a very safe and natural starting point" for better diversification. It works just as its name implies; every member represents the same percentage of the index. (...)"
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  • Pensions Expert (03/04/2014)
    Experts call for smart beta credit to meet diversification demand
    "(...) Financial adviser Rothschild is funding a project with index provider EDHEC-Risk Institute to look into ways in which research into smart beta credit can be improved, as interest from larger pension funds has risen. Thibaud de Vitry, general manager of the adviser's risk-based investment solutions, said there has been increased interest over the past year for fixed income risk-based solutions from some schemes. "In response, a number of investment solutions across different asset classes, including credit, have emerged. These risk-based solutions aim to cover more efficiently the liability structure of a pension scheme," he said. He added that academic research within smart beta is not progressing as quickly in fixed income as it is for equities. "Due to the nature of instruments, the barriers to entry (are) considerably higher," he said. (...)"
    Copyright The Financial Times Limited [Full text]


  • Infrastructure Investor (01/04/2014)
    Life in the slow lane
    "(…) More than a year after France turned off the tap on large PPPs, investors are still looking for direction. Matthieu Favas reports from Paris on where the next opportunities are likely to arise. (...) Authorities also face a concerted effort to demonstrate that partnerships are a good deal for the taxpayer: the EDHEC-Risk Institute, backed by Meridiam Infrastructure and placement agent Campbell Lutyens, recently showed that French PPPs suffer cost overruns of 2 to 3 percent on average – compared with 20 percent for publicly-managed projects. (...)"
    Copyright PEI [Full text - Registration required]


  • Benefits and Pensions Monitor (01/04/2014)
    Diversification Of Portfolio Needs Consideration
    "(...) Institutional investors need to look carefully at the effectiveness of their portfolio diversification, says a publication from the EDHEC-Risk Institute. ‘Improved Risk Reporting with Factor-Based Diversification Measures’ says before the financial crisis, pension funds were insufficiently diversified, with concentration in a small number of asset categories. Since the crisis of 2007, there has been a genuine trend towards investment in new asset classes and categories in order to diversify, but that does not mean that the diversification is effective. Increasing the number of asset classes or categories without taking the inter-relations between their risks into account does not provide any real gain in terms, first, of diversification, and then of performance, it says. (...)"
    Copyright Benefits and Pensions Monitor [Full text]


March 2014

  • Funds Europe (March 2014)
    EDHEC: Naïve versus scientific risks
    "(…) Common risk measures provide little information about causes of risk in portfolios. Lionel Martellini and Romain Deguest, of the EDHEC-Risk Institute, highlight academic work on the relationship between diversification and risk. (...) Risk reporting is increasingly regarded by sophisticated investors as an important ingredient in their decision-making process. Most commonly used risk measures such as volatility (a measure of average risk), value-at-risk (a measure of extreme risk) or tracking error (a measure of relative risk), however, are typically backward-looking risk measures computed over one historical scenario. As a result, they provide very little information, if any, regarding the possible causes of the portfolio riskiness and the probability of a severe outcome in the future, and their usefulness in a decision-making context remains limited. For example, research has found that an extremely risky portfolio such as a leveraged long position in far out-of-the-money put options may well appear extremely safe in terms of the historical values of these risk measures, that is until a severe market correction takes place. In this context, it is of critical importance for investors and asset managers to be able to rely on more forward-looking estimates of loss potential for their portfolios. The main focus of recent EDHEC research – contained within Improved Risk Reporting with Factor-Based Diversification Measures and conducted with the support of Caceis as part of the New Frontiers in Risk Assessment and Performance Reporting research chair – is on analysing meaningful measures of how well, or poorly diversified, a portfolio is, exploring the implication in terms of advanced risk reporting techniques, and assessing whether a relationship exists between a suitable measure of the degree of diversification of a portfolio and its performance in various market conditions. (...)"
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  • Institutional Asset Manager (31/03/2014)
    EDHEC-Risk Institute cautions institutional investors on portfolio diversification
    "(...) A new publication from EDHEC-Risk Institute is encouraging institutional investors to look at the effectiveness of their portfolio diversification. CACEIS supports the research chair on “New Frontiers in Risk Assessment and Performance Reporting” which produced the report. Before the financial crisis, pension funds were insufficiently diversified, with concentration in a small number of asset categories. Since the crisis of 2007, there has been a genuine trend towards investment in new asset classes and categories in order to diversify, but that does not mean that the diversification is effective. The study, Improved Risk Reporting with Factor-Based Diversification Measures, examined the 1,000 largest US pension funds as of 30 September 2002, 30 September 2007 and 30 September 2012. (...)"
    Copyright GFM Limited [Full text]


  • Pensions & Investments (31/03/2014)
    Managers see smart beta pickup among institutional investors
    "(...) Smart beta's popularity among institutional investors has grown substantially in the past couple of years — and experts believe that will continue in 2014 and beyond. (...) “There's a much greater acceptance that cap-weighted indexes aren't the best way to invest in equities,” said Eric Shirbini, global product specialist in London with EDHEC-Risk Institute's smart beta unit, ERI Scientific Beta. One problem with cap-weighted indexes, according to Mr. Shirbini, is that net of fees, active managers tend to underperform. “That's where smart beta comes in,” he said. “The fees for smart beta are more comparable to passive than active management.” The EDHEC-Risk Institute launched its smart beta platform in April 2013 and has had a total of 27,000 users, 500 of which are regular users. Money managers can customize benchmarks and choose different risk exposures by manipulating the nearly 3,000 indexes on the platform. (...)"
    Copyright Pensions & Investments [Full text - Registration required]


  • Risk.net (27/03/2014)
    ETFs to tap EDHEC multi-strategy smart factor index
    "(...) Products that fuse smart beta strategies with factor tilts to provide multi-beta, multi-strategy exposure to global stocks are coming to European exchanges. (...) ERI Scientific Beta, the indexing arm of EDHEC-Risk Institute, will launch an equal-weight "smart factor" index on April 14, in its latest attempt to synthesise investment styles that have found an enthusiastic audience among institutional investors, who believe these strategies can provide them with an edge over broader cap-weighted indexes. By applying smart beta weighting to multiple factor exposures within a single index, ERI is advancing a project it began in February to provide institutions with a combination of smart beta and risk factor investing within one strategy. Amundi and Morgan Stanley are said to be rolling out exchange-traded funds (ETFs) linked to the index, pending regulatory approval. Aimed at institutional investors, the ETFs will be the first fruits of strategic partnerships struck earlier this year between the providers and ERI. The Scientific Beta Developed Multi-Beta Diversified Multi-Strategy Equal-Weight Index gives exposure to global equities with four factor tilts: value, size, momentum and low volatility. Five different weighting mechanisms are applied to each factor, providing the smart beta filter. "Smart factor investing is an approach that takes all the ingredients we have and allows us to design indexes which are both "smart" in terms of the weighting scheme and explicit in terms of the factor tilt," said Felix Goltz, Nice-based research director at ERI Scientific Beta and head of applied research at the EDHEC-Risk Institute, speaking at the EDHEC-Risk Institute conference in London on Tuesday. Goltz called the multi-factor index an advance over previous ERI indexes that use only a single factor tilt because an average of multiple factors "should lead to more robust outperformance". (...)"
    Copyright Incisive Media Investments Limited [Full text - Registration required]


  • ETF Express (27/03/2014)
    ETF investors have positive outlook, says EDHEC survey
    "(...) European exchange-traded fund investors remained satisfied across most asset classes last year, according to the EDHEC European ETF Survey 2013. The survey, which was conducted as part of the Amundi ETF & Indexing research chair at EDHEC-Risk Institute on “Core-Satellite and ETF Investment”, found that here have been increases in satisfaction for corporate bond, commodity, real estate and sector ETFs. Satisfaction rates for ETFs based on the most liquid ETF asset classes are far more consistent compared to those based on illiquid asset classes. Product development within certain asset classes has driven increases in ETF usage, notably within the real estate (5.8 per cent increase), hedge fund (14.8 per cent increase) and infrastructure (14.8 per cent increase) asset classes. More than a quarter (28 per cent) of respondents already use products tracking “smart beta” indices and more than an additional one-third of respondents (36 per cent) are considering investing in such products in the near future. Despite the past growth and increasing maturity of the ETF market, ETF investors are still looking to increase or at least to maintain their use of ETFs and have a more favourable outlook for their use of ETFs than for their use of alternative indexing products. (...)"
    Copyright GFM Limited [Full text]


  • ETF Trends (27/03/2014)
    How European Investors View ETFs
    "(...) The U.S. exchange traded fund industry has attracted a lot of interest. Turning overseas, how has the Europe-listed ETF market fared? “I note with pleasure that, year after year, investors’ satisfaction with ETFs remain very high and the positive outlook for their future use continues to rise,” Valérie Baudson, Global Head of ETF & Indexing, Amundi, said in press release, commenting on the recent EDHEC European ETF Survey 2013, a comprehensive survey of 207 European ETF investors. According to the survey, investor satisfaction has increased for corporate bond, commodity, real estate and sector ETFs, notably for ETFs based on the most liquid asset classes. The survey found that product development has expanded investment usage of the ETF vehicle. Asset classes that saw an increase in usage include real estate up 5.8%, hedge funds up 14.8% and infrastructure up 14.8%. “Interestingly, the latest EDHEC-Risk European ETF survey also shows an increasing interest in the development of ETFs based on alternative forms of indices,” Baudson added. (...)"
    Copyright Global Trends Investments [Full text]


  • Hedge Fund Journal (26/03/2014)
    EDHEC-Risk’s ETF Survey highlights
    "(...) EDHEC-Risk Institute has announced the results of the EDHEC European ETF Survey 2013, a comprehensive survey of 207 European ETF investors. The survey was conducted as part of the Amundi ETF & Indexing research chair at EDHEC-Risk Institute on “Core-Satellite and ETF Investment.” Among the key findings of the 2013 survey: Satisfaction has remained at high levels across most asset classes. There have been increases in satisfaction for corporate bond, commodity, real estate and sector ETFs, but satisfaction rates for ETFs based on the most liquid ETF asset classes are far more consistent compared to those based on illiquid asset classes. (...)"
    Copyright Hedge Fund Journal [Full text]


  • IPE (25/03/2014)
    UK Pension Protection Fund shifts from active management to smart beta
    "(…) The UK Pensions Protection Fund (PPF) has thrown its weight behind smart beta after changing the benchmark it uses to monitor equity managers to a minimum volatility method. The nearly £19bn (€23bn) lifeboat scheme has around 35% of its assets in equity mandates in a mixture of passive and active management. Speaking at EDHEC Risk conference in London, principal portfolio manager John St. Hill told delegates that the fund, as one of the “vanguard” of smart beta, had begun the shift away from active management, including the entire change of its benchmarks. (...) The decision from the fund to shift the benchmark indices it uses also comes amid debate in the industry over conflicts of interest from index providers. EDHEC Risk Institute, based in Nice, France, produced research showing that the majority of institutional investors were dissatisfied with the level of transparency provided by index providers. It said moves to improve governance among providers had failed to convince investors that conflicts of interest were mitigated in index creation, leading to calls for further regulation. The European Commission, and the European Securities and Markets Authority (ESMA), are currently working on a proposal to build in further governance and transparency requirements from providers, in addition to the requirements set on UCITS funds in 2012. ESMA said additional requirements would be necessary as more complex indices, such as those used in smart-beta investments, were brought onto the market. (…)"
    Copyright IPE [Full text - Registration required]


  • Asia Asset Management (24/03/2014)
    Merrill Lynch and EDHEC combine to advance goals-based wealth management
    "(…) Merrill Lynch Wealth Management is teaming up with France’s EDHEC Business School to develop new research on risk allocation and goals based investing, the organisations announced on March 21. The initiative involves the pursuit of fundamental research on risk allocation and goals-based wealth management through a collaboration between Merrill Lynch’s investment management and guidance group and the EDHEC-Risk Institute. The aim of the research project is to deliver a mathematically rigorous approach to investing for goals such as capital preservation, retirement income, maintenance of minimum wealth levels and preferences regarding risk and liquidity, according to Professor Lionel Martellini, scientific director of EDHEC-Risk Institute, who will lead its participation in the partnership. (…)"
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  • Hedge Fund Journal (20/03/2014)
    Merrill Lynch and EDHEC join forces
    "(...) Merrill Lynch Wealth Management and France’s EDHEC Business School have announced they will be joining forces to develop new research on risk allocation and goals based investing. The initiative involves the pursuit of fundamental research on risk allocation and goals-based wealth management through collaboration between Merrill Lynch’s Investment Management and Guidance group and the EDHEC-Risk Institute. The aim of the research project is to deliver a mathematically rigorous approach to investing for goals such as capital preservation, retirement income, maintenance of minimum wealth levels and preferences regarding risk and liquidity, according to Professor Lionel Martellini, scientific director of EDHEC-Risk Institute, who will lead its participation in the partnership. (...)"
    Copyright Hedge Fund Journal [Full text]


  • Wealth Adviser (20/03/2014)
    Merrill Lynch and EDHEC Business School to research goals-based investing
    "(...) Merrill Lynch Wealth Management is teaming up with France’s EDHEC Business School to develop new research on risk allocation and goals based investing. (...) “We are delighted to be able to work on the industry-relevant and intellectually stimulating subject of risk and goal allocation, thanks to our collaboration with Merrill Lynch on this research chair,” says Professor Martellini, who is based in Nice, France. The leader of the initiative for Merrill Lynch is Anil Suri, head of portfolio construction and investment analytics for investment management and guidance. Ashvin Chhabra, chief investment officer for Merrill Lynch Wealth Management says: “This research is fundamental to delivering a client-centric, goals-based approach to investing.” (...)"
    Copyright GFM Limited [Full text]


  • European Pensions (18/03/2014)
    Pension funds want greater transparency from index providers - survey
    "(…) Europe’s largest pension funds are unimpressed by the standard of transparency from index providers, according to new research. A survey covering 109 of Europe’s largest institutional investors revealed concerns over conflicts of interest from index providers, and a support for more rather than less regulation of the industry. EDHEC Risk Institute’s study found just 34.9 per cent of institutional investors were ‘very’ or ‘somewhat’ satisfied with the level of transparency around indices. Equity indices calculated from observable transaction prices were considered to be safe from conflicts of interest by just 16.5 per cent of respondents. More than 62 per cent of investors felt conflicts are broader than those arising from the ownership or control structure of a provider. Accordingly, good governance was considered to be sufficient to minimise conflicts of interest by just 12 per cent of respondents, while 82.5 per cent felt transparency was the best mitigating factor. EDHEC-Risk Institute director Noël Amenc said transparency guarantees the efficiency of an index market that is becoming “increasingly complex and sophisticated”. (...) The survey’s respondents include Europe’s largest pension and reserve funds, insurance and provident institutions and their asset management subsidiaries. The survey revealed a strong desire from participants to be able to conduct detailed due diligence on index concepts on the basis of full transparency of methodologies, index levels, and constituent data. More than 88 per cent of respondents support the clarification of index concepts through clear disclosure of the objectives of indices, and the identification of metrics that allow them to measure the extent to which these objectives have been achieved. (…)"
    Copyright European Pensions [Full text]


  • Ignites Europe (18/03/2014)
    HSBC rolls out smart beta tracker funds in UK
    "(...) Another fund house that has recently embarked on a smart beta push is Amundi. Last month the French fund house agreed a strategic partnership with index provider ERI Scientific Beta, saying it plans to develop a suite of smart beta index and exchange traded funds tracking the firm’s smart beta indices. (...)"
    Copyright Ignites Europe (a Financial Times service) [Full text - Registration required]


  • Institutional Asset Manager (18/03/2014)
    Transparency of indices is inadequate, say institutional investors
    "(...) Investors consider the provision of index transparency to be logical and indispensable, according to a survey by EDHEC-Risk Institute. An overwhelming majority (85.2 per cent) of the 109 respondents from across Europe, including Europe’s largest pension and reserve funds, insurance and provident institutions and their asset management subsidiaries identify transparency as the best mitigator of conflicts of interest and only 12 per cent view good index governance as sufficient to deal with these conflicts. Transparency is currently inadequate and seen to be so by investors. Only around a third of respondents are very (4.6 per cent) or somewhat satisfied (30.3 per cent) with the current level of transparency in the indexing industry. (...)"
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  • Hedge Fund Journal (17/03/2014)
    EDHEC-Risk Institute: investor survey results
    "(...) EDHEC-Risk Institute has surveyed 109 institutional investors from across Europe, including Europe’s largest pension and reserve funds, insurance and provident institutions and their asset management subsidiaries, to document their expectations and requirements with respect to index transparency and take stock of their perceptions of, and the extent of their support for, the main directions of the ongoing regulatory debate on indexing and financial benchmarks. Among the key conclusions of the resulting study, “Index Transparency – A Survey of European Investors’ Perceptions, Needs and Expectations”: (...) Transparency does not harm the interests of index providers because it develops trust and accelerates the adoption of new indices. It does not lead to free services and lack of revenues. There are legal and contractual tools to defend index providers against the unauthorised use of their methodologies and data. In addition, the European regulator, ESMA, has limited the transparency of constituents and weightings to the periods preceding the last rebalancing, which avoids front running and enables providers to conserve their replication service business. Transparency should not be monetised through opacity as it is a precondition to the proper selling and suitable uses of indices. (...)"
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  • ETF Strategy (17/03/2014)
    Institutional investors dissatisfied with index transparency, finds EDHEC-Risk Institute
    "(…) Institutional investors remain dissatisfied with the levels of transparency offered by index providers, according to a survey conducted by EDHEC-Risk Institute. This key finding comes at a time when indices are gaining in prominence and importance as more and more investors adopt a passive-based approach to investing, most notably via index-linked exchange-traded funds (ETFs). (...) Commenting on the survey, Noël Amenc, Director of EDHEC-Risk Institute, said: “Transparency guarantees the efficiency of an index market that is becoming increasingly complex and sophisticated. The market needs to form opinions by sharing information and expertise. It is difficult to accept index providers conducting most of their marketing either with the idea of being a market reference, in the case of cap-weighted indices, or with simulated historical track records of outperformance, in the case of smart beta indices, without giving markets the means to check and question the representativity or the outperformance.” (...)"
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  • Financial News (17/03/2014)
    Calls for managers to open up their smart beta indices
    "(...) Europe’s EDHEC-Risk academic institute is stepping up a campaign to force asset managers to disclose the stocks they use in “smart beta” indices – potentially disclosing the “secret sauce” they use in attempts to outperform conventional benchmarks. EDHEC professor of finance Noël Amenc has written to Sharon Bowles MEP, chairman of the European Parliament’s economic and monetary affairs committee, saying smart beta benchmarks should be subject to new European regulation bringing transparency to financial benchmarks and indices. Developers of smart beta indices object, arguing that investors could mimic their performance without paying fees or might even use knowledge of the strategy to trade against them. Amenc, however, says investors risk being misled unless they can compare the products they buy with the indices they claim to match. He said: “The issue is whether market participants can freely have access to the data, which is a requirement for investors to be able to form an educated opinion regarding the relevance of the indices. This is the essence of market efficiency.” EDHEC has put together a set of “scientific beta” indices whose components are fully disclosed. Other smart beta providers said EDHEC was seeking to take advantage of a rule change. Amenc denied this, saying a change would diminish the special appeal of his indices. (...)"
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  • IPE (17/03/2014)
    Governance ‘not enough’ for index providers to mange conflicts – EDHEC
    "(…) Institutional investors have voiced concerns over opacity among index providers in a survey conducted by EDHEC-Risk Institute, which found the majority of respondents were dissatisfied with provider transparency. The report surveyed investors on their views of index providers, governance and transparency. Called ‘Index Transparency – A Survey of European Investors’ Perceptions, Needs and Expectations’, the report showed that a significant majority (82%) of investors believed transparency was the best method for index providers to manage conflicts of interest. Only 12% suggested good governance was enough for this to take place. EDHEC’s report said a governance-based approach would not only be ineffective in dealing with conflict-of-interest risks but also counterproductive. It said: “It would also strengthen the existing oligopoly in the index provision industry with adverse consequences for competition and innovation. Such an approach is recognised as ineffective by investors and as costly by asset managers.” The research highlighted that only a 4.6% were ‘very satisfied’ with the current level of transparency from index providers, with two-thirds of respondents suggesting the level was inadequate. (…)"
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  • Funds Europe (17/03/2014)
    Index track records "underminded", investors say
    "(…) Many of Europe’s largest pension funds believe index transparency is inadequate and that rules governing transparency of indices in Ucits funds should also extend to other investments. Investors consider index transparency to be “logical and indispensable” says the EDHEC-Risk Institute, which surveyed 109 institutional investors across Europe including some of the largest pension schemes. (...) But many agree (80.8%) that a lack of transparency “undermines the credibility of reported track records … in particular for new forms of indices”. Indexation has become more complex in recent years with the rise of indices that offer an alternative benchmark to traditional cap-weighted forms. As well as providing a benchmark, newer forms of indices – often referred to as “smart beta” – attempt to tap higher returns than their cap-weighted cousins. Noël Amenc, an EDHEC director, says: “Transparency guarantees the efficiency of an index market that is becoming increasingly complex and sophisticated. The market needs to form opinions by sharing information and expertise.” He adds: “It is difficult to accept index providers conducting most of their marketing either with the idea of being a market reference, in the case of cap-weighted indices, or with simulated historical track records of outperformance, in the case of smart beta indices, without giving markets the means to check and question the {representativeness} or the outperformance.” EDHEC says that, with a single exception, the index providers analysed as part of the study do not give access to the historical constituents of the indices, and for a significant number of smart beta indices, the methodologies described do not allow the indices to be replicated. (...)"
    Copyright Funds Europe [Full text - Registration required].


  • Asia Asset Management (March 2014)
    More eggs in more robust baskets: Effective measures of portfolio diversification for risk reporting
    Article by Lionel Martellini, professor of finance, EDHEC Business School, scientific director, EDHEC-Risk Institute, and Romain Deguest, senior research engineer, EDHEC-Risk Institute
    "(…) Risk reporting, which is the subject of the New Frontiers in Risk Assessment and Performance Reporting research chair at EDHEC-Risk Institute, supported by CACEIS, is increasingly regarded by sophisticated investors as an important ingredient in their decision-making process, and a large number of indicators are now available to help them assess the risks of their portfolio. The most commonly used risk measures such as volatility (a measure of average risk), value-at-risk (a measure of extreme risk) or tracking error (a measure of relative risk), however, are typically backward-looking risk measures computed over one historical scenario. As a result, they provide very little information, if any, regarding the possible causes of the portfolio riskiness, the probability of a severe outcome in the future, or the reward that an investor can expect in exchange for bearing those risks. In this context, it appears to be of critical importance for investors and asset managers to also be able to rely on forward-looking risk indicators for their portfolios. (…)"
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  • Bloomberg (05/03/2014)
    Smart Beta ETFs Beating S&P 500 Index Capture Record Cash
    "(...) EDHEC-Risk Institute, a business school with offices from Singapore to London, has said the industry must improve transparency in their index selection. The school promotes about 3,000 smart-beta indexes. “The products available are not fair to investors, providers don’t fully disclose where the risks are,” Eric Shirbini, global-product specialist for EDHEC’s ERI Scientific Beta team in London, said in an interview. “They are new and growing in significance, and that is why we put so much emphasis. Smart beta is here to stay, so it is very important for people to understand the risks.” Many smart-beta strategies are based on formulas that are not publicized, Shirbini said. (...)"
    Copyright Bloomberg [Full text]


  • ETF.com (03/03/2014)
    Smart Beta: Don’t Rely On Academia
    "(...) When investing via a smart beta index, an investor should pick a geography, stock selection, a weighting scheme and manage risk factor control; for example, being sector neutral to hedge against certain industries. It’s not just about piling your money into a low vol fund and closing the file for another year. “An investor should look carefully at which factors will be rewarded; there is no absolute truth,” advised Dr Felix Goltz, head of applied research at EDHEC-Risk Institute and research director at ERI Scientific Beta. “You can look at long term data, but at the end of the day it has to do with investor belief. They should do their own investment and come up with their own set of desired factors.” And even if a certain factor is rewarded, an investor might not want to tilt that way as he does not want to take that risk. Again, don’t bury your head in a book to make a decision. “Even if a factor is thoroughly documented, that is not enough to be convinced,” said Goltz. “You can’t conclude from empirical evidence, as research tends to work on similar data sets. It could be a lot of research has gone through the same data and you end up with a data mining problem.” (...)"
    Copyright ETF.com [Full text]


February 2014

  • Infrastructure Investor (28/02/2014)
    The construction of myth
    "(…) Perhaps it’s this bitter first-hand experience which helps to explain why construction risk has attained an almost mythical status in institutional investor circles as the risk to fear above all others when it comes to investing in infrastructure. Ever since the Crisis, with hopes pinned on pensions and insurers as the future of long-term finance, we’ve been hearing the expression “if only” time and again – as in: if only they could handle construction risk. It was more than a year ago that the EDHEC Risk Institute challenged conventional wisdom. Picking up on a National Audit Office report that questioned the wisdom of the UK government’s guarantees scheme (offering the possibility that the public sector would step in to take construction risk off private investors’ hands), EDHEC argued that construction firms should be big enough and experienced enough to take construction risk on their shoulders. (...)"
    Copyright PEI [Full text - Registration required]


  • Investment Europe (27/02/2014)
    Sustained growth puts smart beta under the microscope
    "(...) Eric Shirbini, global product specialist at ERI Scientific Beta, points to ongoing transparency as crucial to the continued adoption of SB indices. "Full transparency is more important for smart beta indices when compared to traditional capweighted indices that have a long live history and whose performance does not differ by much across index providers for the same market or segment." He adds: "As these indices expose investors to a different set of risks than traditional capweighted indices investors need full transparency to be able to carry out their due diligence. Without full transparency, the growth of this important and significant market will be hampered." Shirbini divides transparency up into three areas: data, rules and analytics. "Proper due diligence will require knowing the weights and the composition of the index at each rebalancing date in order to be able to assess the level of concentration within each index, sector risk, country risk, capacity, liquidity and turnover. "Turnover, liquidity and capacity for these indices are particularly important when taking implementation considerations and cost into account as smart beta indices have higher turnover and a limited capacity when compared to cap-weighted indices." "Secondly, full disclosure of the ground rules and calculation methodology is important so that the simulated and live indices can be replicated and audited independently from the index provider. "Thirdly, analytics are important to measure and control for the absolute and relative risks of these indices and to better understand how these indices perform in different market regimes such as in bull or bear market conditions." For investors in equal weighted indices, there is also liquidity risk to consider, Shirbini says, one reason why ERI Scientific Beta has created its own series of High Liquidity indices. (...)"
    Copyright Incisive Media [Full text]


  • L'Agefi Suisse (27/02/2014)  
    Yale et EDHEC: séminaire risk management
    "(...) L’école de gestion Yale School of Management et l’École des Hautes Études Commerciales du Nord (EDHEC) annonce un partenariat dans l’offre de cours sur mesure dans le domaine de l’investissement et de la gestion du risque, basés sur les recherches académiques des deux grandes écoles précitées. Ces cours sont essentiellement destinés aux professionnels (directeurs à responsabilité élevée). Un séminaire est prévu du 18 au 19 mars à Londres, conduit par les professeurs Raman Uppal et William N. Goetzmann. (...)"
    Copyright Impressum L'Agefi [Full text - French]


  • ETF World (27/02/2014)
    Amundi and ERI Scientific Beta announce strategic partnership
    "(...) Amundi and ERI Scientific Beta, the smart beta index provider, have announced today a strategic partnership that will combine ERI Scientific Beta’s expertise in the design of smart beta indices and Amundi’s know-how in index replication and ETF construction. The partnership will involve the construction of smart beta passive investment solutions and their promotion to a broad institutional client base. The offering is being developed on the basis of ERI Scientific Beta’s “Smart Beta 2.0” approach, which enables smart beta indices to be conceived as risk control ingredients within multi-smart-beta allocation. (...)"
    Copyright ETFWorld.es [Full text]


  • The Wall Street Journal (21/02/2013)
    Five Myths of Bond Investing
    "(...) Are bonds a portfolio's bulwark or its Achilles' heel? Investors can't seem to decide. Over the last seven months of 2013, amid rising interest rates and falling bond prices, skittish investors yanked $18 billion more out of bond funds than they put in. Then, as stocks faltered in the first six weeks of 2014, investors put in over $28 billion more to bond funds than they withdrew. Adding to the confusion: Wednesday's disclosure that Federal Reserve officials are debating whether to raise interest rates sooner than expected. The yield on the 10-year U.S. Treasury hit 2.75% on the news, up from 1.62% in May. (Bond yields move in the opposite direction of prices.)(...) "For big losses to occur, interest rates would have to rise enormously," says Frank Fabozzi, a bond expert who teaches finance at EDHEC Business School in Paris and Princeton University. (...)"
    Copyright Dow Jones & Company, Inc. [Full text]


  • Risk.net (21/02/2014)
    Index roundup: Morgan Stanley taps smart beta indexes
    "(...) Morgan Stanley has signed a global replication licence with ERI Scientific Beta which gives the bank access to all the company's smart beta indexes and their associated selection and tracking/evaluation tools, with full transparency and no additional cost. The licence allows Morgan Stanley to replicate Scientific Beta indexes and share information with all counterparties of a fund or mandate relating to the replication. (...)"
    Copyright Incisive Media Investments Limited [Full text - Registration required]


  • Ignites Europe (19/02/2014)
    Amundi sets sights on smart beta push
    "(...) Amundi plans to roll out a new range of smart beta passive investment solutions after agreeing a strategic partnership with index provider ERI Scientific Beta. The deal will see Amundi granted access to ERI Scientific Beta’s range of smart beta indices in order to develop a suite of smart beta index and exchange traded funds. Amundi adds that the offering, primarily for institutional clients, will be developed on the basis of ERI Scientific Beta’s Smart Beta 2.0 approach, which will allow the fund house to choose and control the benchmarks according to risk. The French asset manager will also be granted access to selection and tracking/evaluation tools for each indices, according to a spokesperson. Valérie Baudson, global head of ETFs and indexing at the firm, says providing clients with “innovative and proven solutions have been two of the watchwords that have seen the successful development of the Amundi ETF & Indexing business over the past years.” Ms Baudson adds: “By partnering with ERI Scientific Beta we will be able to build on this approach by offering our clients efficient indexed managed solutions, including the very latest in smart beta index construction expertise.”(...)"
    Copyright Ignites Europe (a Financial Times service) [Full text - Registration required]


  • IPE (18/02/2014)
    EDHEC expands smart-beta index with Morgan Stanley, Amundi deals
    "(…) ERI Scientific Beta, a smart-beta platform, has announced partnerships with Morgan Stanley and Amundi in a bid to enhance its platform for investors looking to move into the latest investment strategy. The provider, part of the EDHEC-Risk Institute, a Paris-based academic body, said the agreements would help develop its aim to become the first provider of a smart-beta platform. Smart beta, the systematic and rules-based strategy to equity investment, which focuses on exposure to beta factors, has been growing in popularity among institutional investors. In response, EDHEC-Risk Institute launched its platform in the spring of 2013, which it said provided complete transparency on the methodology and compositions of the indices. It also developed a Smart Beta 2.0 risk-management approach, which followed ERI Scientific Beta’s aim to provide the index industry with more academic rigour, transparency and risk control – all at a lower cost. With Morgan Stanley, the firm said, it has signed a global replication license, which will see the US bank, and fellow index provider, replicate the smart-beta indices and have access to the evaluation tools and tracking methodology used within the indices. With Amundi, the French asset manager, ERI Scientific Beta said the pair had agreed a strategic partnership that will see the construction of smart-beta passive investment solutions for institutional clients. (…)"
    Copyright IPE [Full text - Registration required]


  • ETF.com (18/02/2014)
    Amundi And EDHEC Join For Smart Beta Collaboration
    "(...) EDHEC-Risk Institute’s smart beta platform has teamed up with exchange traded fund provider Amundi to create smart beta passive products for the institutional market. The strategic partnership, which combines ERI’s smart beta platform, ERI Scientific Beta, and Amundi’s expertise in ETFs, is being developed on the back of ERI Scientific Beta’s “Smart Beta 2.0” approach. This enables smart beta indices to be used as risk controls within multi-smart-beta allocation. (...) ERI Scientific Beta has also signed a global replication licence with Morgan Stanley allowing the bank to replicate Scientific Beta indices and also share information with all the counterparties of a fund or mandate relating to the replication of a Scientific Beta index. (...) Hitendra Varsani, head of quantitative and derivative strategies at Morgan Stanley, said: “The significant interest and growth in smart beta strategies is driven by investors looking to improve risk-adjusted returns, manage volatility, and access more sophisticated weighting methodologies. Through our partnership with ERI Scientific Beta, investors will benefit from transparent smart beta index replication using Morgan Stanley’s market leading execution platform.” (...)"
    Copyright ETF.com [Full text]


  • Hedge Fund Journal (18/02/2014)
    Amundi enters new partnership
    "(...) The partnership will involve the construction of smart beta passive investment solutions and their promotion to a broad institutional client base. The offering is being developed on the basis of ERI Scientific Beta’s “Smart Beta 2.0” approach, which enables smart beta indices to be conceived as risk control ingredients within multi-smart-beta allocation. “Providing our institutional clients with the most innovative and proven solutions have been two of the watchwords that have seen the successful development of Amundi ETF & Indexing business over the past years. By partnering with ERI Scientific Beta we will be able to build on this approach by offering our clients efficient indexed managed solutions including the very latest in smart beta index construction expertise,” said Valérie Baudson, Global Head of ETF & Indexing at Amundi. “This strategic partnership will allow Amundi to access ERI Scientific Beta’s extensive offering of smart beta indices and the selection and tracking/evaluation tools for these indices with full transparency. We are very much looking forward to helping Amundi to provide its institutional clients with the most rigorously defined and best performing smart beta ETF & Indexed products,” said Noël Amenc, CEO of ERI Scientific Beta. (...)"
    Copyright Hedge Fund Journal [Full text]


  • Hedge Fund Journal (17/02/2014)
    EDHEC-Risk Europe Days conference
    "(...) On the first day, the Indexation and Passive Investment Conference will look at smart beta allocation, new index and benchmark offerings in the equity and fixed income universes and measuring risk diversification of indices. Results of an exclusive survey of European asset owners will highlight the latest trends in ETF usage. On the second day, the Global Institutional Investment Conference will commence with a plenary session on multi smart beta risk allocation. A panel of investors and asset allocators will discuss the added value of smart beta diversification in risk allocation. Day two will also include key sessions on systematic strategies in long-only equity investing and alternative investments, new research on infrastructure investing, Solvency II, reducing risk in the OTC derivatives market and risk parity. The conference will include the participation of Global Event Partners Amundi ETF & Indexing, BNP Paribas, Eaton Vance Investment Managers, ERI Scientific Beta, ETF Securities, Lyxor Asset Management, Ossiam, Quoniam Asset Management, Rothschild & Cie Gestion, Russell Indexes and Stoxx; Gold Sponsors Morgan Stanley, Northern Trust and State Street Global Advisors; and Exhibitors Commerzbank, Invesco Powershares, SIX Swiss Exchange, Source and UBS. (...)"
    Copyright Hedge Fund Journal [Full text]


  • ETF Strategy (17/02/2014)
    Amundi and ERI Scientific Beta announce strategic partnership
    "(…) Amundi, a leading European asset manager and provider of exchange-traded funds (ETFs), and ERI Scientific Beta, a smart beta index provider and affiliate of the EDHEC-Risk Institute, have announced a strategic partnership that will combine ERI Scientific Beta’s expertise in the design of smart beta indices and Amundi’s know-how in index replication and ETF construction. The partnership will involve the construction of smart beta passive investment solutions and their promotion to a broad institutional client base. he offering is being developed on the basis of ERI Scientific Beta’s “Smart Beta 2.0” approach, which enables smart beta indices to be conceived as risk control ingredients within multi-smart-beta allocation. (...)"
    Copyright ETF Strategy Ltd [Full text]


  • HedgeWeek (14/02/2014)
    Smart beta to take centre stage at EDHEC-Risk Europe Days conference in London
    "(...) Smart beta investing, efficient risk diversification, liability driven investment (LDI) strategies, infrastructure and fixed income investing are among the topics to be presented at the EDHEC-Risk Days Europe 2014. The event will take place at The Mermaid Conference & Events Centre in Blackfriars, London on 25-26 March. The conference will open with a roundtable involving leading industry representatives and regulators and will address the topic of index transparency and investor expectations. The session will include the presentation of a survey on the transparency and governance of international indices carried out by EDHEC-Risk Institute. The conference will also feature the latest EDHEC-Risk Institute research on a range of topics that are currently relevant for the financial industry. On the first day, the Indexation and Passive Investment Conference will look at smart beta allocation, new index and benchmark offerings in the equity and fixed income universes and measuring risk diversification of indices. Results of an exclusive survey of European asset owners will highlight the latest trends in ETF usage. On the second day, the Global Institutional Investment Conference will commence with a plenary session on multi smart beta risk allocation. A panel of investors and asset allocators will discuss the added value of smart beta diversification in risk allocation. (...)"
    Copyright GFM Limited [Full text]


  • ETF.com (12/02/2014)
    EDHEC Unveils Multi-Strategy Smart Factor Indexes
    "(...) ERI Scientific Beta has launched a range of smart beta indices providing access to various risk strategies in developed countries, which follows on from its announcement in September. The so-called “smart factor” indices are built on the ERI Scientific Beta platform by investors. Investors pick their geography and one of 24 "risk tilts"; for example, high momentum, which defines the stock selection. The stocks are then weighted by taking the average weighting from five strategies: maximum deconcentration, minimum variance, diversified risk weighting, maximum Sharpe ratio and maximum decorrelation. This enables “double diversification”, according to Eric Shirbini, business development director Europe at ERI Scientific Beta, as the index is diversified in stock weighting and strategy. “The problem is that fundamental indices [currently in the market] are just as concentrated as cap weighted indices and that exposes investors to unrewarded and unspecific risks, and that is what we are trying to avoid,” he said. These risks could be in sector concentration, currency or commodities, or risks of specific stocks. One example is high exposure to utilities through a minimum volatility strategy. The alternative is to have a combination of five strategies in one index. In total 216 new indices will be launched across nine regions, multiplied by 24 different kinds of stock selection. (...)"
    Copyright ETF.com [Full text]


  • Hedge Fund Journal (12/02/2014)
    EDHEC-Risk Institute welcomes two new members
    "(...) EDHEC-Risk Institute has announced that two new members have joined its international advisory board: Brad Holzberger, Chief Investment Officer, QSuper and Yuan Zhou, Chief Strategy Officer, China Investment Corporation (CIC). Holzberger was appointed as Chief Investment Officer in February 2009. His responsibilities include leading the investment team and research into investment philosophy, market trends and broad industry developments in regard to investment processes. Holzberger’s role also encompasses asset allocation, strategic currency policy, establishing fund-level strategies and risk budgets. (...) Zhou is the Chief Strategy Officer of CIC and Head of CIC’s Finance and Accounting Department. Immediately prior to this, he was Head of the Alternative Investment Department, Special Investment Department and Asset Allocation and Strategic Research Department of CIC. Prior to joining CIC, Zhou served as Executive Vice Chairman of Hong Kong Mercantile Exchange, Head of Asia business development at Chicago Mercantile Exchange, and President of Zeta Institute of Finance and Risk Management. (...)"
    Copyright Hedge Fund Journal [Full text]


  • Institutional Asset Manager (12/02/2014)
    ERI Scientific Beta launches multi-strategy smart factor indices
    "(...) As part of its Smart Beta 2.0 approach, which is based on the research conducted by EDHEC-Risk Institute, ERI Scientific Beta has launched a series of multi-strategy smart factor indices. (...) These multi-strategy smart factor indices maximise the diversification of strategy-specific risks and as such provide performance that is on average 68 per cent better than that of traditional factor indices. All Scientific Beta multi-strategy smart factor indices show positive excess returns in the long term compared to cap-weighted indices, notably High Value, with an annualised relative return of 4.70 per cent, Mid Cap (4.45 per cent), Mid Liquidity (4.25 per cent), High Momentum (3.56 per cent) and Low Volatility (2.90 per cent). These factor exposures correspond to risk factors that are considered in the financial literature to be well rewarded, and as such are often favoured by investors in the construction of their long-term equity allocation. (...)"
    Copyright GFM Limited [Full text]


  • IPE (12/02/2014)
    People roundup
    "(…) EDHEC-Risk Institute – The institute has appointed two new members to its international advisory board. The new members are Brad Holzberger, CIO at QSuper, and Yuan Zhou, chief strategy officer at China Investment Corporation (CIC). (…)"
    Copyright IPE [Full text - Registration required]


  • ETF Strategy (12/02/2014)
    ERI Scientific Beta rolls out multi-strategy smart beta indices
    "(…) ERI Scientific Beta, the indexing venture launched by Paris-based academic institution EDHEC-Risk Institute, has unveiled a series of “multi-strategy smart factor indices”. The smart beta indices allow investors to gain exposure to desired risk factors while at the same time benefitting from index diversification. Underpinned by research conducted by the highly acclaimed EDHEC-Risk Institute, the indices are available for all developed world geographical regions including USA, UK, Eurozone, Developed Europe ex UK, Japan, Developed Asia Pacific ex Japan, Developed ex USA, Developed ex UK and Developed. The indices maximise the diversification of strategy-specific risks and as such provide performance that is on average 68% better than that of traditional factor indices, based on an historical comparison of Sharpe Ratios for US large-cap portfolios. In addition to superior risk-adjusted performance, all of the indices show positive excess returns in the long term compared to cap-weighted indices. (...)"
    Copyright ETF Strategy Ltd [Full text]


  • Funds Europe (February 2014)
    EDHEC Research: Attractive additions
    "(…) With high levels of demand for corporate bonds, the EDHEC-Risk Institute considers why these assets are good for both performance-seeking and liability-hedging portfolios. (...) International accounting standards, which recommend that pension obligations be valued on the basis of a discount rate equal to the market yield on AA-rated bonds, say the most straightforward way for pension funds to match liability payments is to build a portfolio of long-dated, investment grade corporate bonds. In practice, pension funds and other institutions are actually showing an increasing appetite for corporate bonds, not only for their liability-hedging benefits, but also for their performance benefits related to the presence of a credit risk premium, which is imperfectly correlated with the equity risk premium. (...)"
    Copyright Funds Europe [www.funds-europe.com - Registration required]


  • HedgeWeek (05/02/2014)
    All Scientific Beta indices now have full transparency
    "(...) ERI Scientific Beta has announced that all 2,958 smart beta indices available on its platform are now available with full transparency. This transparency enables all the Scientific Beta indices to be fully compliant with ESMA’s recommendations on the transparency of financial indices, and in addition allows any counterpart in the index market to be able to check and analyse the track records published by ERI Scientific Beta. “EDHEC-Risk Institute has been calling for many years for free access for investors to data relating to reference indices. We believe that making information available, not only on returns but also on the weighting of the stocks in the indices and their historical composition, is essential for investors to be able to carry out their due diligence on those indices with full independence. To our knowledge, ERI Scientific Beta is the only provider to offer this full transparency,” says Noël Amenc, director of EDHEC-Risk Institute and CEO of ERI Scientific Beta. (...)"
    Copyright GFM Limited [Full text]


  • Asia Asset Management (February 2014)
    Index transparency: Recent regulatory developments
    Article by Frédéric Ducoulombier, director at EDHEC Risk Institute – Asia
    "(…) While indices have long played a crucial role in investment, index provision has not traditionally been a regulated activity. When regulators have imposed restrictions on indices that could be used by retail funds, these have been relatively high-level: wide recognition and acceptance; wide dissemination and availability of public information about composition and methodology; and sufficient diversification. It is only recently, against the backdrop of the rapid growth and diversification of indexing products, and in the shadow cast by integrity issues with the oil price and interbank rate benchmarks, that indices have received closer scrutiny and the question of imposing higher standards of methodological quality, governance and transparency upon indices has been discussed. (…)"
    Copyright Asia Asset Management [Full text - Registration required]


January 2014

  • Hedge Fund Journal (31/01/2014)
    EDHEC-Risk Institute calls for transparency
    "(...) EDHEC-Risk Institute has welcomed the European Parliament vote on the regulation of financial benchmarks and called for high and uniform standards of transparency to allow investors to make informed decisions and promote integrity, competition and innovation in the indexing industry. (...) At the same time, EDHEC-Risk Institute has called upon the Committee and the European Parliament to ensure that all benchmarks used in the European Union be required–on a complimentary basis and on fair and non-discriminatory terms–to provide both historical data (e.g. index levels, components and weightings) and detailed methodology to permit independent historical index replication on a non-commercial basis. Such transparency would allow all interested parties to verify the integrity of track records and measure the extent of discretion exercised in the application of methodologies. More importantly, it would enable investors to assess benchmark suitability by analysing the benefits, risks and costs of indices in the context of their particular objectives and constraints as well as integrate indices into a modern risk and investment management framework. By adopting this standard of transparency, which exactly corresponds to that introduced by ESMA for the eligibility of financial indices within UCITS, the European legislator would not only allow the appropriate use of robust and reliable benchmarks, which is the other objective of the proposed regulation, but also foster information-based competition and further innovation in the indexing industry. (...)"
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  • Institutional Asset Manager (30/01/2014)
    EDHEC-Risk Institute welcomes European Parliament financial benchmarks vote delay
    "(...) The institute has also called for high and uniform standards of transparency to allow investors to make informed decisions and promote integrity, competition and innovation in the indexing industry. Needing more time to reach consensus, the European Parliament’s Economic and Monetary Affairs Committee has delayed its vote on the proposed regulation of financial benchmarks amid divergences over the scope of the regulation and the supervisory role of the European Securities and Markets Authority (ESMA). To reduce the risk of benchmark manipulation, the European Commission proposed to regulate a very wide spectrum of indices, while subjecting inter-bank interest rate benchmarks, commodity benchmarks and critical benchmarks to additional requirements. Given the onerous compliance requirements that the Commission proposed to impose on all benchmark providers irrespective of the quality and transparency of their indices, EDHEC-Risk Institute says it welcomes the Committee’s proposals to focus the regulation on critical, vulnerable or systemically relevant benchmarks while further expanding the scope of the indices covered by the regulation, and to mandate ESMA to develop regulatory technical standards for a risk-based proportionate implementation. (...)"
    Copyright GFM Limited [Full text]


  • Investment Magazine (10/01/2014)
    How ETFs are being used
    "(…) The use of ETFs in Australia has grown almost 50 per cent since the beginning of 2013 reaching just shy of $10bn in funds under management as at the end of December. While in the early years growth was driven by retail investors, recent activity suggests ETF uptake by institutional investors is on the rise. Overseas in 2012 over 90 per cent of the largest US mutual funds used ETFs as well as over 80 per cent of the largest 20 US hedge funds (Source: Bloomberg), while in Europe, according to a 2012 EDHEC Survey, 70 per cent of institutions surveyed used ETFs. (…)"
    Copyright Conexus Financial Pty Ltd. [Full text]