Scientific Beta Multi-Beta Multi-Strategy (MBMS) indices outperform cap-weighted indices over a three-year live period by over 2% on average
The Scientific Beta Multi-Beta Multi-Strategy Equal Weight (EW) and Equal Risk Contribution (ERC) flagship indices in all regions have posted positive live performance in comparison with their cap-weighted counterparts, with an average annualised outperformance of 2.13% over the period since the indices went live on December 20, 2013 to the end of December 2016.
Over the three-year live period, the 18 indices that correspond to the initial flagship offering (i.e. the Scientific Beta Multi-Beta Multi-Strategy EW and ERC indices for nine regions: Developed, Developed ex US, Developed ex UK, Developed Europe ex UK, US, UK, Eurozone, Asia-Pacific ex Japan and Japan) all outperformed, with an average annualised excess return of 2.13%%. The Developed World indices for the EW and ERC indices produced excess returns of 1.61% and 1.65% respectively.
In terms of risk, the average reduction in volatility for the 18 flagship Scientific Beta indices was 9.40%. On average, we were able to measure an improvement in risk-adjusted performance, expressed by the Sharpe ratio, of 41.35% compared to the broad cap-weighted index. The Developed World indices for the EW and ERC indices produced improvements in Sharpe ratios of 45.19% and 44.34% respectively.
The Scientific Beta Multi-Beta Multi-Strategy flagship offering aims to offer very robust performance of smart beta indices in relation to their cap-weighted counterparts in all market conditions.
This robustness is due to a double layer of factor and specific risk diversification, which enables each of the smart factor indices that make up the Multi-Beta Multi-Strategy benchmark to benefit over the long term not only from diversified exposure to the rewarded risk factors that they represent (Value, Size, Momentum, Low Volatility) but also a strong reduction in non-rewarded idiosyncratic volatility that is often very significant in traditional factor indices, which tend to be highly concentrated and poorly diversified.
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