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Indices & Benchmarking - January 19, 2015

Rothschild & Cie "Active Allocation to Smart Factor Indices" Research Chair

The Rothschild & Cie "Active Allocation to Smart Factor Indices" research chair at EDHEC-Risk Institute, led by Professor Lionel Martellini, Director of EDHEC-Risk Institute, will examine the benefits of smart beta allocation. The goal is to provide a quantitative assessment of the benefits expected from the three following sources of added-value in the design of equity portfolios with superior risk and return characteristics:

  • Time-varying strategic allocation decisions, where the focus is on efficiently reacting to changes in risk parameter estimates;

  • Time-varying tactical allocation decisions, where the focus is on efficiently reacting to changes in market conditions based on a detailed analysis of the conditional performance of smart factor indices for different types of market environment;

  • Time-varying core-satellite allocation decisions, where the focus is on efficiently managing the portfolio risk with respect to the cap-weighted reference, so as to generate a substantial access to the benefits of smart beta management, with limited downside risk relative to the cap-weighted benchmark.

[Press release announcing the creation of the research chair (13/01/15)]

The research chair follows on from the previous Rothschild & Cie research chair at EDHEC-Risk Institute on "The Case for Inflation-Linked Corporate Bonds: Issuers’ and Investors’ Perspectives".

Research output:

Active Allocation to Smart Factor Indices
July 2015
Noël Amenc, Guillaume Coqueret, Lionel Martellini
This paper provides a formal empirical analysis of the benefits of strategic and tactical allocation to multiple equity smart factor indices in a context where relative risk with respect to the cap-weighted indices needs to be explicitly controlled for. The focus of this paper is to provide a quantitative assessment of the benefits expected from the three sources of added-value (which come from time-varying strategic, time-varying tactical or time-varying core-satellite allocation decisions) in the design of equity benchmarks with superior risk and return characteristics. The authors show the benefits that active managers and asset owners can expect from dynamically allocating to smart factor indices, with a focus on efficiently reacting to changes in market conditions, as well as efficiently spending relative risk budgets with respect to a cap-weighted reference portfolio. [Press release announcing the publication of the research: 08/10/15]

About Rothschild & Cie:

Rothschild has been involved in investment management since its beginning two hundred years ago when Rothschild businesses were established in the principal cities of Europe at the end of the 18th century. The Rothschild Group is one of the world’s leading independent investment banking and asset management organisations and has established a network of companies around the world: more than 2800 people are employed by Rothschild in 40 offices all over the world (New-York, Paris, London, Zurich, Tokyo, Singapore…).

Our Asset Management business provides investment management and advisory services to institutional clients, fund distributors and financial intermediaries worldwide. Our services are provided from Paris, London and New York through specialist subsidiaries.

Headquartered in Paris, Rothschild & Cie Gestion offers high-conviction strategies, mainly in European assets. We cover a full range of products including equities, fixed-income, convertible bonds and flexible diversified funds. These strategies are offered in mutual funds, dedicated funds or mandates. Our goal is to deliver excellent returns for our clients by over-performing the indices, whatever the market conditions, with a controlled level of risk.

Rothschild HDF Investment Solutions offers its clients a full range of innovative and open-architecture investment solutions that cross the traditional boundaries between asset classes. These solutions are adapted to clients’ specific needs and regulatory status, and are offered under various formats; including open-ended or dedicated funds, mandates, portfolios of managed accounts, and others. Headquartered in London, Risk-Based Investment Solutions Ltd (RBIS) constructs a broad range of risk-based weighting schemes without limitation in terms of number of underlying securities, asset classes and combinations of asset classes. This new risk-based approach to portfolio construction offers more efficient alternatives to traditional “cap-weighted” (equity) or “debt-weighted” (bond) portfolios.

Rothschild Asset Management (New York) offers investment management services in the following strategies: US Large-Cap Equity – Core and Value US Small/Mid-Cap Equity – Core US Small- Cap Equity – Core, Value,and Growth US Balanced. Contact:

Website: www.rothschild.com/IAM/