The Smart Beta Group, is setup as container for all content related to Smart Beta Indexing. We will cross post new product releases within the Smart Beta space here, and will try to update the Group on new research.

In the Database we have started to Index Smart Beta product and indices according to to either a Qualitative or Quantitative Methodology. This should make it very easy for users to quickly get an overview of the offerings within the Segment.

Please note we also have a Search section for "Insight" where you as a member san search for research and content related to Smart Beta.

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IShares launch 5 new MSCI Diversified Multi-Factor ETFs

The MSCI Diversified Multi-Factor Indexes use the Barra product risk tools to construct indexes that track the performance of four factors – Value, Momentum, Quality and Low Size – which have, over time, provided higher return than the overall market while keeping risk at the level of an underlying parent index.

The innovation is in capturing optimal exposure to a diversified set of factors while aiming to keep risk similar to that of the underlying mother benchmark indices utilizing constraints.

The Best Offense: When Defensive Strategies Win

S&P Dow Jones Indices is out with a piece of research that highlight the regime conditional benefit of Low Volatility investing.

Understanding any investment strategy requires us to understand how its success is driven by the market regime in which it operates.

Strategies that overweight high beta stocks, e.g., will tend to look good in strong markets and bad in weak markets. Defensive strategies like low volatility or high yield will display the opposite pattern.

JPMorgan Launch Diversified Return International Equity ETF

The JPMorgan Launch Diversified Return International Equity ETF seeks investment results that closely correspond, before fees and expenses, to the performance of the FTSE Developed Diversified Factor Index. The FTSE Developed Diversified Factor Index is comprised of large and mid cap equity securities selected from the FTSE Developed Index, and uses a rules-based risk allocation and multi-factor selection process developed in partnership with J.P.

IShares launch 5 new MSCI Diversified Multi-Factor ETFs

The MSCI Diversified Multi-Factor Indexes use the Barra product risk tools to construct indexes that track the performance of four factors – Value, Momentum, Quality and Low Size – which have, over time, provided higher return than the overall market while keeping risk at the level of an underlying parent index.

The innovation is in capturing optimal exposure to a diversified set of factors while aiming to keep risk similar to that of the underlying mother benchmark indices utilizing constraints.

JPMorgan Launch Diversified Return International Equity ETF

The JPMorgan Launch Diversified Return International Equity ETF seeks investment results that closely correspond, before fees and expenses, to the performance of the FTSE Developed Diversified Factor Index. The FTSE Developed Diversified Factor Index is comprised of large and mid cap equity securities selected from the FTSE Developed Index, and uses a rules-based risk allocation and multi-factor selection process developed in partnership with J.P.

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EDHEC-Risk Position Paper Smart Beta 2.0

Recent years have seen increasing interest in new forms of indexation, referred to as Smart Beta strategies. Investors are attracted by the performance of these indices compared to traditional cap- weighted indices. However, by departing from cap-weighting, Smart Beta equity indices introduce new risk factors for investors, and no sufficient attention is presently given to the evaluation of these risks. In addition, the Smart Beta market appears to be inefficient today, due to restricted access to information, as well as lack of independent analysis.

Christoph Kind: Risk-Based Allocation of Principal Portfolios

Risk-based asset allocation strategies are mainly used to diversify nominal asset weights. In this paper, we discuss the diversification of risk factors. The analysis is based on the idea of Partovi and Caputo (2004), who use principal component analysis to transform a portfolio into a set of uncorrelated principal portfolios. Risk-based asset allocation strategies can be applied to these uncorrelated sources of risk. A similar route has been taken by Meucci (2009) with his idea of a maximum entropy portfolio.

Lohre, Opfer, & Orszag: Diversifying Risk Parity

Striving for maximum diversification we follow Meucci (2009) in measuring and managing a multi-asset class portfolio. Under this paradigm the maximum diversification portfolio is equivalent to a risk parity strategy with respect to the uncorrelated risk sources embedded in the underlying portfolio assets. Our paper characterizes the mechanics and properties of this diversified risk parity strategy.

Attilio Meucci: Managing Diversification

We propose a unified, fully general methodology to analyze and act on diversification in any environment, including long-short trades in highly correlated markets with complex derivatives. First, we build the diversification distribution, i.e. the distribution of the uncorrelated bets in the portfolio that are consistent with the portfolio constraints. Next, we summarize the wealth of information provided by the diversification distribution into one single diversi- fication index, the effective number of bets, based on the entropy of the diversi- fication distribution.

Roncalli & Weisang: Risk Parity Portfolios with Risk Factors

Portfolio construction and risk budgeting are the focus of many studies by academics and practitioners. In particular, diversification has spawn much interest and has been defined very differently. In this paper, we analyze a method to achieve portfolio diversification based on the decomposition of the portfolio's risk into risk factor contributions. First, we expose the relationship between risk factor and asset contributions. Secondly, we formulate the diversification problem in terms of risk factors as an optimization program.

Bhansali, Davis, Rennison, Hsu & Li: The Risk in Risk Parity

To sum-up the paper the authors basically illustrate how traditional Asset Allocation and first generation Risk Parity models are broken, because while they may be diversified across Assets, they are concentrated around the same return drivers. 

The authors use a Principal Component Analysis showing that exposure are basically driven by two eigenvalues, that they proxy as Global Growth and Global Inflation. 

The momentum factor: the basics and Robeco’s solution

Factor investing, which advocates looking beyond traditional asset classifications and allocating to factor premiums such as size, value, momentum and low volatility, is taking ground. Especially since the publication of an influential report for Norges Bank Investment Management, one of the largest investment managers in the world, an increasing number of institutional investors allocates to factor premiums, while more are interested. At Robeco, we embrace the concept of factor investing.

Optimal Momentum: A Global Cross Asset Approach

Momentum is widely accepted among academic researchers as one of the strongest return generating factors, yet it remains largely unknown by the investing public. This paper explores that dichotomy by examining momentum from a practical point of view. Using exchange traded fund data from 2002 through 2010, we compare industry, style and geographic applications of momentum. Global stock index funds using four geographic regions give the best momentum results, but with a high level of volatility. 

Absolute Momentum: A Simple Rule-Based Strategy and Universal Trend-Following Overlay

There is a considerable body of research on relative strength price momentum but relatively little on absolute, time series momentum. In this paper, we explore the practical side of absolute momentum. We first explore its sole parameter - the formation, or look back, period. We then examine the reward, risk, and correlation characteristics of absolute momentum applied to stocks, bonds, and real assets. We finally apply absolute momentum to a 60-40 stock/bond portfolio and a simple risk parity portfolio.

Risk Premia Harvesting Through Dual Momentum

Momentum is the premier market anomaly. It is nearly universal in its applicability. This paper examines cross-asset momentum with respect to what can make it most effective for momentum investors. We explore price volatility as a value-adding factor. We show that both absolute and relative momentum can enhance returns, but that absolute momentum does far more to lessen volatility and drawdown. We see that combining absolute and relative momentum gives the best results.

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