Equities are a major asset class for institutional and individual investors, who use them in the hope of achieving high returns in the long run, possibly at the cost of substantial downside risk in the short run. Traditionally, equity portfolios have been benchmarked against cap-weighted indices, and active funds have attempted to outperform the market. This landscape has profoundly evolved since the early 2000s with the recognition that cap-weighted indices fail to efficiently capture risk premia available in equities, and with a growing demand for transparent and low-fee investment products. These concerns have favoured the emergence of exchange-traded funds (ETFs) and the development of many alternative equity indices, notably including factor indices and smart beta products. After the rise in passive investing and factor investing, the new frontier in equity investing will be the inclusion of ESG criteria, to meet the demand for products that satisfy social responsibility criteria and/or low-carbon footprint conditions.
EDHEC-Risk Institute has been conducting research in equity investing since 2006, with an annual survey on the practices of European ETF investors and a number of research articles on equity factors and efficient diversification of equity portfolios.
As part of its policy of transferring knowledge to the industry, it set up ERI Scientific Beta in 2013 to favour the adoption of the latest advances in smart beta design and implementation by the whole investment industry. In January 2020, ERI Scientific Beta was acquired by Singapore Exchange (SGX) for EUR186 million.
As part of its policy of transferring know-how to the industry, EDHEC-Risk Institute has set up Scientific Beta. Scientific Beta is an original initiative which aims to favour the adoption of the latest advances in smart beta design and implementation by the whole investment industry. Its academic origin provides the foundation for its strategy: offer, in the best economic conditions possible, the smart beta solutions that are most proven scientifically with full transparency of both the methods and the associated risks.
On January 31, 2020, Singapore Exchange (SGX) acquired a majority stake in Scientific Beta. SGX will maintain the strong collaboration with EDHEC Business School, and principles of independent, empirical-based academic research, that have benefited Scientific Beta’s development to date.
As of December 31, 2019, there was USD 59.2bn in assets replicating Scientific Beta indices. 35% of these assets under replication are ESG-compliant. Furthermore, over 3,000 asset owners and asset managers are using our smart beta indices to benchmark or analyse smart beta strategies.
The FTSE EDHEC-Risk Efficient Index Series aims to capture equity market returns with an improved risk/reward efficiency compared to cap-weighted indices. The weighting of the portfolio of constituents achieves the highest possible return-to-risk efficiency by maximising the Sharpe ratio.
Further information is available at:
The FTSE EDHEC-Risk Efficient Eurobloc ERAFP SRI Large Cap Custom Index aims to efficiently capture the performance available within an SRI screened universe of large and mid cap stocks in the Eurobloc. While the SRI screen allows addressing non-financial objectives, the efficient weighting scheme seeks to improve return-to-risk efficiency by improving portfolio diversification. While the screen relies on qualitative information on companies' SRI compliance, the weighting method uses robust estimates of a stock’s risk and return as inputs.
For further information, please contact FTSE.
EDHEC-Risk Institute has developed an active research programme in the construction of and allocation to smart equity indices.
This programme has benefited from the continued and historical support of Amundi since 2009 in the context of the “ETF, Indexing and Smart Beta Investment Strategies” research chair.
It has also included the “Active Allocation to Smart Factor Indices” research chair, in partnership with Rothschild & Cie, as well as the “Maximizing Volatility Pumping Benefits in Equity Markets” research chair, in partnership with Banque de France Gestion.
Since as early as 2006, EDHEC-Risk Institute has produced research on the inefficiency of cap-weighted equity indices supported by Af2i (French association of institutional investors), BNP Paribas Asset Management and UBS.