Add the power of active to the efficiency of passive with SMARTER Beta™ exclusively from Aberdeen. Managed by a highly experienced team and with ESG embedded in our approach, we target multiple factor premia, aiming to help you enhance return and reduce risk – reliably, robustly and responsibly.
Competitively priced bundled solutions for the benefit of sophisticated institutional and professional investors
Smart beta, a form of factor investing, has rapidly become a popular alternative to both traditional active and passive management and is now firmly recognised by investors as a third approach to investing.
At Aberdeen, our approach to smart beta is referred to as SMARTER Beta™ - an acrostic for the characteristics that makes it ‘smarter than beta’:
Fully systematic investment solutions that efficiently harvest multiple risk premia factors and regularly rebalances to maintain targeted factor exposures;
Provides targeted exposure to multiple enhanced RIPE factors – Value, Quality, Momentum, Small Size, and Low Volatility – which benefits from low, and even negative, cross-sectional correlations across factors which drives diversification benefits and improves risk-adjusted returns;
Competitively priced bundled solutions (i.e. our proprietary indices are only available to Aberdeen Asset Management and our investment strategies tracking these indices do not pay index licensing fees) for the benefit of sophisticated institutional and professional investors;
Designed to be more intuitive and diversified than rival approaches in order to perform effectively in a variety of market conditions;
Our proprietary indices are owned by Aberdeen Asset Management but independently calculated by a leading third party calculation agent/administrator;
Our index universe excludes controversial companies (companies exposed to controversial weapons and those with ‘severe controversies’);
Our enhanced factors are Robust, Intuitive, Persistent, and Empirical.
RIPE factors in focus
RIPE factors is an acrostic for the Robust, Intuitive, Persistent, and Empirical prerequisites for inclusion as a risk premia factor:
factors must perform effectively in a constantly changing environment;
factors should behave as one would expect e.g. a company with improving financial metrics such as increasing profit margins and asset turnover should, everything else being equal, perform better than a company with decreasing profit margins and asset turnover;
factor returns will be cyclical but show persistence and generate excess returns over medium to long-term; and
factors should be based on/supported by empirical academic research that explains a reasonable basis for the existence of a premium.
The RIPE factors are Value, Quality, Momentum, Small Size, and Low Volatility:
|Factor||Premise||Common constructions||Our enhanced approach||Rationale|
Stocks priced low (high) relative to fundamental measures of value outperform (underperform) so bias portfolio towards cheap stocks
Metrics based on P/B, P/E, D/P or composites of these and other fundamental value metrics
We use forward looking data which is particularly relevant in periods of changing markets and company financials
Reflects forward looking company valuations (ie when banks cut dividends this is reflected in our factor design)
Stocks of higher quality companies tend to outperform so bias portfolio towards stocks with a strong measure of quality
Metrics such as ROE, ROA, earnings stability, dividend growth stability, financial leverage
In addition to the common metrics used we also focus on capital expenditures and efficiency of capital utilised
By focusing on capital efficiency and improvements in quality metrics we aim to capture improvements rather than just levels
Price trends tend to persist so bias portfolio towards stocks that have recently performed well
Metrics based on past returns (eg. 6 or 12 months, often excluding a recent period), sometimes normalised for volatility
We capture momentum not only at the stock level but also at an industry level. We also look at earnings momentum using forward estimates
Academic research has shown that momentum at the industry level persists and explains most of the excess returns
Small companies tend to outperform larger ones so bias portfolio towards stocks with a smaller market capitalisation
Metrics based on market capitalisation (full or free float)
We capture the small size effect at the portfolio level. Doing so allows us to benefit from the correlations between stocks
Return enhancing due to (i) small company illiquidity and credit risk premia and (ii) the rebalancing effect of selling stocks that have risen in price
Contrary to predictions of financial theory, less risky stocks tend to outperform risker ones so bias portfolio towards stocks with historically low absolute variability of returns
Metrics based on beta and realised volatility, eg standard deviation (one year, two years, three years), downside standard deviation, standard deviation of idiosyncratic returns, beta
We capture the low volatility effect at the portfolio level. Doing so allows us to benefit from the correlations between stocks
Capturing the effect at the fund level allows us to hold stocks with average volatility which might display other desirable characteristics
It is important to note that we have deliberately excluded environmental, social, and governance (ESG) factors as a risk premium. This is not because we believe ESG to be unimportant; indeed, the opposite is true. As a responsible investor, we have fully integrated ESG into our systematic investment processes as we believe ESG helps promote competitive financial returns and positive environmental and societal impact. However, a sufficiently long history of ESG data is not available so it does not, for the time being, meet our prerequisite criteria for inclusion as a RIPE factor.
Nevertheless, we have fully integrated ESG within our SMARTER Beta™ equity approach since we believe ESG helps promote competitive financial returns and positive environmental and societal impact. Our ‘ESG Inside’ methodology excludes controversial companies, specifically those companies involved in the production of cluster bombs and munitions, landmines, depleted uranium weapons and armour, and chemical and biological weapons. We also exclude companies deemed to have severe controversies (the ‘worst of the worst’) from our investable universe, based on ratings by our ESG data partner, Sustainalytics.
Spectrum of indices
Our investment strategies follow a broad range of SMARTER Beta™ equity indices*.
*It is not possible to purchase an index directly.
Seven salient features of SMARTER Beta™ equity indices and funds
1) SMARTER Beta™ = Systematic, Multifactor, Affordable, Resilient, Transparent, ESG Inside, and RIPE Factors™
2) RIPE = Robust, Intuitive, Persistent, and Empirical (RIPE)
3) As per our volatility comparison and analytics with MSCI All Country World Index. Our approach makes use of a broader universe, has exposure to a greater number of outperforming risk premia, fully integrates ESG, is rebalanced more often to maintain targeted factor exposures (ie prevents factor decay), those rebalances are not advertised in advance to the wider market (so we cannot be front-run), and our final index is more concentrated in terms of security holdings vis-à-vis competing designs (which provides a higher active share relative to the market cap equivalent and other smart beta designs). Source: Aberdeen Asset Management and MSCI.
Source: MSCI. The MSCI information may only be used for your internal use, may not be reproduced or redisseminated in any form and may not be used as a basis for or a component of any financial instruments or products or indices. None of the MSCI information is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such. Historical data and analysis, should not be taken as an indication or guarantee of any future performance analysis forecast or prediction. The MSCI information is provided on an “as is” basis and the user of this information assumes the entire risk of any use made of this information. MSCI, each of its affiliates and each other person involved in or related to compiling, computing or creating any MSCI information (collectively, the “MSCI” Parties) expressly disclaims all warranties (including without limitation, any warranties of originality, accuracy, completeness, timeliness, non-infringement, merchantability and fitness for a particular purpose) with respect to this information. Without limiting any of the foregoing, in no event shall any MSCI Party have any liability for any direct, indirect, special, incidental, punitive, consequential (including, without limitation, lost profits) or any other damages (www.msci.com).
4) ESG = Environmental, Social, and Governance
5) V&E = Voting and Engagement
We are a full-service global asset manager with USD 374 billion in third party assets under management (as at 31 December 2016). We have a demonstrable track record of success in managing passive strategies since 2005, active quantitative strategies since 2007, and smart beta strategies since 2013.
Our investment process is grounded in academic research and well-proven investment theory.
Our experienced and stable team of 28 investment professionals has complementary skillsets located across offices in Edinburgh, London, and Shanghai. With $77 billion in assets under management across passive, smart beta, and active quantitative strategies (as at 31 December 2016), we benefit from significant economies of scale.
Aberdeen has also been a signatory to the Principles for Responsible Investment (PRI) since 2007, underlining our ESG credentials.
Aberdeen Quantitative Investments team
Formed in 2005, the team manages a diverse range of systematic products across the risk-return spectrum including passive, smart beta, and active quant strategies. Using proprietary, systematic (rules-based) approaches to investing, our team manages equity, fixed income, and derivative portfolios across all markets to provide clients with cost-effective, risk-controlled and transparent customised solutions.
Our investment process is grounded in academic research and well-proven investment theory. We identify sources of excess risk-adjusted returns, test them throughout the business cycle, and implement them in a systematic, cost-effective, and risk-controlled manner. By having a deep understanding of the individual sources of returns, we are well placed to optimally combine them to create solutions in line with our clients’ requirements, which could encompass pure index tracking, enhanced indexation, smart beta (SMARTER Beta™) or derivative overlays such as call options overwriting.
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