This paper investigates the mean-variance and diversification properties of risk-based strategies performed on style or basis portfolios. EDHEC shows that the performance of these risk strategies is improved when performed on portfolios sorted on characteristics correlated with returns and is highly sensitive to the sorting…

EDHEC-Risk Institute conducted its 12th survey of European investment professionals about the usage and perceptions of ETFs, smart beta and factor investing, as part of the Amundi research chair at EDHEC-Risk Institute on “ETF, Indexing and Smart Beta Investment Strategies”. The aim of this study is to analyse current…

This article develops the theory of risk budgeting portfolios, when we would like to impose weight constraints. It appears that the mathematical problem is more complex than the traditional risk budgeting problem. The formulation of the optimization program is particularly critical in order to determine the right risk…

While of recent invention, the catch phrase “Smart Beta” represents an extension or evolution of “quantitative investment” techniques of decades-old lineage. The revolutionary movement lies in Smart Beta’s democratization of these techniques and making them transparent to investors. By way of metaphor, consider the…

While 'top-down' allocation to factor premiums (such as size, value, momentum, quality, and low volatility) has become mainstream, questions remain about how to efficiently gain exposure to these premiums. Today, many generic factor products, often labeled as 'smart beta', completely disregard the impact…

Investors are increasingly looking to factor investing as a valuable tool to help achieve investment objectives. Today, possibly half of institutional investors use factor strategies for at least some portion of their portfolios. And when over 300 global institutional and wholesale investors who are already using factors…

Investors are increasingly looking to factor investing as a valuable tool to help achieve investment objectives. Today, possibly half of institutional investors use factor strategies for at least some portion of their portfolios. And when over 300 global institutional and wholesale investors who are already using factors…

With a wealth of smart beta indices to choose from, market participants may find it difficult to decide when each factor-based strategy is best suited to deliver returns. Is it wise to rely solely on the performance of one factor? If not, what multi-factor approaches could be considered and how effective are they?

Prior research and empirical investment results have shown that portfolio construction choices related to rebalance schedules may have non-trivial impacts on realized performance. The authors construct long-only indices that provide exposures to popular U.S. equity factors (value, size, momentum, quality, and low volatility…

When we contemplate the evolution of the investment management industry in aggregate, it appears to us that an increased desire to control risk and isolate and/or define investment outcomes is a persistent, likely permanent, feature of the financial market landscape. Waning investor preference for stock pickers is being…

Many Smart Beta ETFs are bought with the expectation of long-term market outperformance. The factors that many are based on have been proven both academically and empirically to produce excess returns. However, especially in the short-term, many of these funds may be vulnerable to different market, factor and economic events…

Institutional equity portfolios are increasingly dominated by a large passive core and a smaller constellation of high tracking error satellite portfolios – the core and explore approach. We examine the role of lower tracking error strategies such as enhanced index and smart beta in this core and explore world. In the…