EDHEC-Risk Institute publication shows that smart beta risks can be controlled while benefitting from smart beta performance
(Thomson Reuters ONE) -
A new EDHEC-Risk Institute publication entitled "Risk Allocation, Factor
Investing and Smart Beta: Reconciling Innovations in Equity Portfolio
Construction", drawn from the Amundi ETF & Indexing research chair at EDHEC-Risk
Institute on "ETF and Passive Investment Strategies," shows that it is possible
to reconcile the performance of smart beta with control over the risk of the
investment.
Starting 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, EDHEC's researchers show that 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.
Two major results can be highlighted:
* 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% with relative drawdown of 5%.
* 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.
Commenting on this research, Noël Amenc, Director of EDHEC-Risk Institute and
CEO of ERI Scientific Beta, said, "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."
Valérie Baudson, Global Head of ETF & Indexing at Amundi, comments:
"Institutional investors are showing growing interest in, and increasingly
using, smart beta, which is definitely a strategic axis of development for
Amundi. We are delighted to support EDHEC- Risk Institute, which, with this new
research paper, provides additional guidance for investors to optimize the
implementation of smart beta strategies in their asset allocation."
This research was supported by Amundi ETF & Indexing as part of the research
chair at EDHEC-Risk Institute on "ETF and Passive Investment Strategies."
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EDHEC-Risk Institute, 393 promenade des anglais, BP3116, 06202 Nice Cedex 3,
France. For further information, please contact: Séverine Cibelly, Tel.:
+33 493 187 863, E-mail: severine.cibelly(at)edhec-risk.com, Web: www.edhec-
risk.com.
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Press Release - Smart Beta Risk Allocation:
http://hugin.info/157174/R/1864376/654362.pdf
ERI Publication - Risk Allocation, Factor Investing and Smart Beta:
http://hugin.info/157174/R/1864376/654361.pdf
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originality of the information contained therein.
Source: EDHEC-Risk Institute via GlobeNewswire
[HUG#1864376]
Unternehmensinformation / Kurzprofil:
Datum: 21.10.2014 - 10:36 Uhr
Sprache: Deutsch
News-ID 345509
Anzahl Zeichen: 4252
contact information:
Town:
Roubaix
Kategorie:
Business News
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