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Lyxor research highlights the growing role of Smart Beta in new investment strategies

Lyxor Asset Management today unveils the results of a new wide-ranging study that compares the performance of European domiciled active funds with that of their benchmarks. The research highlights the growing importance of risk factors and other Smart Beta strategies in generating performance in the current challenging market conditions.

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In this research piece, unique by its sheer scope with the performance of 3,740 active funds representing €1.2 trn in AUM compared to their traditional benchmarks over a period of ten years, Lyxor found that European domiciled active funds had a more positive year in 2015, with an average of 47% outperforming their benchmarks, significantly more than 2014 where just 25% outperformed on average [1].

Looking at the source of this outperformance, Lyxor found a significant part could be attributed to specific risk factors. These ‘risk factors’ describe stocks that exhibit the same attributes or behaviours. Lyxor has identified five key risk factors: Low Size, Value, Quality, Low Beta and Momentum, which together account for 90% of portfolio returns [2].

European active fund managers for example were overweight Low Beta, Momentum and Quality Factors in 2015, which all outperformed benchmarks. Another aspect of Lyxor’s research compared active fund performance with Minimum Variance Smart Beta indices, which are designed to reduce portfolio volatility. Here the results were even more compelling: whereas 72% of active funds in the Europe category outperformed a traditional benchmark in 2015, only 14% outperformed the Smart Beta index [3].

These findings demonstrate the increasing role played by Smart Beta strategies that are based on rules that do not rely on market capitalization, as an indispensable pillar of investor portfolio. Factor-investing is one of the various investment strategies referred to as Smart Beta. “In today’s markets characterized by very low interest rates, higher volatility and no market trend in risky asset markets, investors need to look at new forms of portfolio allocation in order to find diversification and generate performance,” Marlene Hassine, head of ETF research at Lyxor Asset Management; commented. “Smart Beta, which can be implemented, either with a more passive or a more active bias, is one of the new tools at the disposal of investors”, she added.

With USD$ 12bn in asset under management in Smart Beta strategies [4], Lyxor has developed a comprehensive and innovative approach to Smart Beta, offering a wide range of investment solutions to match all types of investor needs – reducing risk, generating income or enhancing returns.

  • On the passive side, Lyxor has been a pioneer of Smart Beta ETFs, launching their first fund in 2006, and expanding into a full and cohesive range of single and multi-factor ETFs, Minimum Variance ETFs, and quality income strategies. Lyxor ranks 3rd by assets under management for smart beta ETFs [5].
  • At the other end of the spectrum, Lyxor is taking an active approach of Smart Beta investment with an innovative strategy – a European equity fund allowing investors to gain a dynamic exposure to factors selected using an innovative combination of quantitative and fundamental analysis.

Next Finance , September 2016

Article also available in : English EN | français FR


[1] Source: Data in EUR from Morningstar from 31/12/2005 to 31/12/2015.

[2] Brinson, Hood and Beebower, 1986 And Norwegian Global Pension Funds. Source. Ang, Goetzmann and Schaefer, 2009.

[3] Source: Data in EUR from Morningstar from 31/12/2005 to 31/12/2015.

[4] Source: Bloomberg and Lyxor AM – AuM as of end of June 2016.

[5] Source. Lyxor International Asset Management, as at 31 July 2016.

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