Investors relying on nomenclature of smart beta indexes as an accurate reflection of their factor exposures should take a closer look. New research, using a “factor efficiency ratio”, finds that most smart beta indexes are unable to provide desired factor exposures without taking on substantial unintended exposures. Importantly the paper finds that some smart beta
The traditional method of using aggregated monthly data to measure long run risk is flawed and inaccurate, according to important new research by State Street. Co-authors David Turkington, Will Kinlaw and Mark Kritzman have found that there is a huge divergence in risk and return over long periods, which is not visible when using measures
Automatic exclusion of coal or petroleum producers is not an effective way for the Norwegian Sovereign Wealth Fund of addressing climate issues, according the report of the expert group on investments in coal and petroleum to the Norwegian Ministry of Finance. “We believe the use of the Fund as a climate policy instrument beyond what
As asset owners move away from silo-based investment decision making, their performance attribution systems also need to evolve. The Alberta Investment Management Corporation AimCo, the C$70 billion arm’s length investment manager for public sector assets in Alberta, Canada, has implemented a new performance attribution system based on how managers actually make their investment decisions.
Choosing the appropriate benchmark for active managers is a common debate among institutional investors. Norges Bank Investment Management has produced a “discussion note’ on the benchmark design for an active investment process, in which it introduces a flexible modelling framework that aims to incentivise each portfolio manager to utilise their stock-picking skill. The benchmark
New research by MSCI shows a rare insight into whether the factor phenomenon, driving development market equities beta, is at play in emerging markets. The research uses the Barra Emerging Markets Equity Model to look at the drivers of performance of emerging markets, and analyses the returns of active emerging market managers to identify the
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