Entering ‘second phase’ of smart beta
By Valérie Baudson, Amundi – Providing our institutional clients with the most innovative and proven solutions has been the key driver behind the successful development of Amundi ETF & Indexing’s business. Today, smart beta is clearly a strategic development axis for us.
Investors’ interest in smart beta solutions has been growing in recent years in response to some of the limitations of existing market cap-weighted indices and as risk criteria are increasingly incorporated into the allocation process. To meet this demand, asset managers and index providers have developed a variety of offers.
The first phase of development of the smart beta framework model focused mainly on analysing and selecting individual strategies such as value, minimum volatility, high dividend, diversification or risk parity.
We have now entered a second phase, which focuses on combining smart beta factors using either dynamic signal-based or systematic approaches, rather than employing individual strategies which do not react in the same way under different market conditions. This promises to ensure long-term robustness.
Amundi’s Index Equity process enables the replication as closely as possible of any smart beta index from any index provider, based on either single or multi smart beta approaches. This can be structured as either an ETF or an index fund/mandate. The process is designed to deliver an efficient replication of smart beta indices with a constant focus on minimising costs and monitoring turnover and liquidity. It also benefits from Amundi’s critical mass – the group has over USD1tn of assets under management* – which is critical when it comes to efficient indexing.
With an existing range of single strategy ETFs and strong capabilities in tracking customised indices in mandates, we are now entering a new era of smart beta development.
As the first step in this direction, we have recently partnered with EDHEC-Risk Institute and Scientific Beta teams to create a multi smart beta index that can be replicated either as an index mandate or in ETF format. This strategy index combines a selection of four factors which are expected to produce performance over the long term – low volatility, valuation, size, momentum – with five smart beta strategies, and aims to provide improved risk-adjusted performance compared to a cap-weighted index.
More broadly, the objective of this partnership is to offer tailor-made index investment solutions by combining Amundi’s know-how in index replication and ETF construction and ERI Scientific Beta’s expertise in the design of smart beta indices (ERI’s ‘Smart Beta 2.0’ platform provides access to nearly 3,000 indexes with transparency).
Besides product development, it is essential that asset managers offer both education and advice, as the smart beta arena can be confusing.
With already around USD12bn of AuM* in smart beta solutions in both active and passive management, Amundi has developed a dedicated advisory service to help investors with the mapping, selection and implementation of smart beta allocations. Amundi has built this service after a thorough review of the existing smart beta products on the market, with a view to sharing its expertise with investors and help them to make investment choices at a time when the appetite for smart beta exposure continues to grow.
Our key words in this new area of development will remain transparency, clarity and cost effectiveness, which have been at the core of Amundi ETF & Indexing’s successful strategy from the outset.
*Source: Amundi – 31 December 2013
This material is directed at professional clients only for the purposes of the Financial Conduct Authority’s Conduct of Business Sourcebook only and must not be relied upon by any other persons.