{"id":37631,"date":"2014-10-22T07:22:51","date_gmt":"2014-10-22T05:22:51","guid":{"rendered":"http:\/\/beta.next-finance.net\/note\/edhec-risk-institute-publication-shows-that-smart-beta-risks-can-be-controlled-while-benefitting-from-smart-beta-performance\/"},"modified":"2014-10-22T07:22:51","modified_gmt":"2014-10-22T05:22:51","slug":"edhec-risk-institute-publication-shows-that-smart-beta-risks-can-be-controlled-while-benefitting-from-smart-beta-performance","status":"publish","type":"post","link":"http:\/\/beta.next-finance.net\/en\/note\/edhec-risk-institute-publication-shows-that-smart-beta-risks-can-be-controlled-while-benefitting-from-smart-beta-performance\/","title":{"rendered":"EDHEC-Risk Institute publication shows that smart beta risks can be controlled while benefitting from smart beta performance"},"content":{"rendered":"<p>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\u2019s researchers show that <strong>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.<\/strong> <\/p>\n<p><quote>Two major results can be highlighted:<\/p>\n<ul>\n<li> In relative terms, <strong>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.<\/strong> 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%. <\/li>\n<\/ul>\n<ul>\n<li> 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, <strong>it is possible to respect factor risk parity constraints.<\/strong> 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. <\/li>\n<\/ul>\n<p><\/quote><\/p>\n<p>Commenting on this research, No\u00ebl Amenc, Director of EDHEC-Risk Institute and CEO of ERI Scientific Beta, said, <em>\u201cFor 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.\u201d<\/em><\/p>\n<p>Val\u00e9rie Baudson, Global Head of ETF &#038; Indexing at Amundi, comments: <em>\u201cInstitutional 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.\u201d<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"<p>A new EDHEC-Risk Institute publication entitled <em>\u201cRisk Allocation, Factor Investing and Smart Beta: Reconciling Innovations in Equity Portfolio Construction,\u201d<\/em> drawn from the Amundi ETF &#038; Indexing research chair at EDHEC-Risk Institute on \u201cETF and Passive Investment Strategies,\u201d shows that it is possible <strong>to reconcile the performance of smart beta with control over the risk of the investment.<\/strong> <\/p>\n","protected":false},"author":20,"featured_media":37629,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[1481],"tags":[1655,1718,1651,1437,1724,2234,2091,2118],"_links":{"self":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/posts\/37631"}],"collection":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/users\/20"}],"replies":[{"embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/comments?post=37631"}],"version-history":[{"count":0,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/posts\/37631\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/media\/37629"}],"wp:attachment":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/media?parent=37631"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/categories?post=37631"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/tags?post=37631"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}