Alternative beta
Equity factors captured by alternative indices
There are a number of equity factors which can be considered as part of an alternative index, shown in the table below.
Equity factors captured by alternative indices | |||
Value | Value stocks outperform growth stocks: undervalued stocks, as measured by accounting data and ratios (e.g. book value / market value, dividend), generate higher returns than overvalued stocks | ||
Volatility | Low volatility stocks outperform high volatility stocks: known as the "low volatility anomaly" because it contradicts conventional finance wisdom of a trade-off between risk and return | ||
Size | Small cap stocks outperform large cap stocks: negative relation between stock returns and the company market value | ||
Profitability / Quality | High quality stocks outperform low quality stocks: more profitable companies, as measured by accounting data (e.g. profit margin, profit growth), generate higher returns than less profitable companies | ||
Momentum | Stocks with recent (3-12 months) high price performance tend to continue their high price performance in the near term (3-12 months) | ||
We believe that of the five factors listed, value, volatility and quality could provide investors with significant benefit.
The benefits of index blending
Whilst historical evidence shows alternative indices have outperformed the market over the long term, each factor typically experiences a different performance pattern. Thus choosing a blend of alternative indices can provide diversification benefits. By working in partnership with you, we believe we can deliver a diversified blend of indices to meet your desired objective.
Our alternative beta offering
The Structured Beta & Indexing team have been managing portfolios benchmarked to alternative beta indices since early 2010. We can custom blend alternative beta indices depending on clients’ individual requirements. Our focus is on innovative solutions and we continually review our offering to ensure we are meeting your needs.
If you require further information please get in touch.
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