We are pleased to present an ERI Scientific Beta research paper entitled "Choose Your Betas: Benchmarking Alternative Equity Index Strategies", which appeared in the Fall 2012 issue of the Journal of Portfolio Management.
Much thought has been given in recent years to the quality of construction of smart beta benchmarks but we believe that much progress remains to be made, notably in the area of controlling the risks associated with the adoption of new types of benchmarks.
We have also worked extensively on the implementation of absolute or relative risk constraints in the benchmark optimisation process itself. The article from the Journal of Portfolio Management presents what is in our opinion a simple and easy-to-implement first step.
We have been able to show that the distinction between the selection and weighting phases (which can be made for most smart beta construction methods) could add value both in terms of performance and in controlling the investment risks.
Our smart beta index platform (www.scientificbeta.com), which we opened on April 29, 2013, crystallises our desire to favour the adoption of this new step forward in the area of smart beta investment.
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