Amundi is a pioneering force in the smart beta market. The firm’s specialist analysis of market dynamics has resulted in the development of a range of solutions that can deliver superior risk/return profiles than those offered by traditional cap-weighted solutions.
Amundi has cemented a reputation for being consistently ahead of the curve. What form does this take?
Laurent Trottier, global head of ETF, indexing & smart beta management: “It can mean launching innovative products – more than a third of our ETF vehicles are exclusive to the firm at time of launch. Also, early adoption of pioneering concepts – Amundi was one of the first firms to embrace smart beta. Today, we have a ten-year track record in the field. and offer a full range of both active and passive Smart Beta solutions.”
What do you think accounts for the rise of smart beta?
Trottier: “In the current environment, with non-existent interest rates, but supportive central banks and cash-rich businesses, individuals and institutions alike are keen to capitalise on the opportunities offered by equities.
“According to an Edhec-Risk survey, 75% of respondents think smart beta indices provide significant potential to outperform cap-weighted indices in the long term, and 81% avoid cap-weighted indices that are concentrated in very few stocks or sectors.”
How does a smart beta strategy differ from a cap-weighted one?
Trottier: “Smart beta can be an answer to the lack of diversification of cap-weighted indices, as they apply alternative weighting. In respect of factor investing, it can offer exposure to the most rewarding risk factors. Theoretically, this makes for better returns than parent cap-weighted indices, and reduced risk.”
Speaking of factor investing, how can this contribute to improved risk-adjusted performance?
Alessandro Russo, head of equity quantitative research: “We’ve long understood asset class dynamics are governed by factors, and asset allocation should be approached in terms of risk allocation of fundamental factors as a result.
“In terms of equities, factors provide additional risk premium compared to blended equity exposure, have a minor impact on total portfolio risk, and low reciprocal correlations. Furthermore, investors can exploit clear relationships factor returns exhibit with financial markets and the economic cycle. These features make factors somewhat predictable, and dynamic factor allocations profitable.”
Trottier: “To meet rising client demand for factor-based strategies, Amundi has created a wide range of smart beta solutions, many of which are as yet unique to the firm.
The primary geographical regions, sectors and capitalisation sizes are covered. These strategies cater to the requirements of long-term investors keen to construct an enduring portfolio, reactive to market changes and insulated against volatility.”
What factors do you include?
Russo: “In our experience, empirically demonstrable long-term factors such as value, momentum, volatility and small-capitalisation are the most fundamental in reducing risk while potentially optimising returns.
“Nonetheless, every Amundi smart beta strategy has a distinctive set of factor-based filters and formulae. Clients can further tailor weighting and allocation filters to their own needs, and take into account ethical, environmental, governance and corporate social responsibility considerations if they wish.”
Which indexes do Amundi’s strategies emulate?
Trottier: “Our clients can duplicate every existing smart beta index issued by major providers, and utilise both single and multi-factor approaches. For example, we recently launched an innovative Multi-smart beta European equities ETF, which replicates the Scientific Beta Extended Developed Europe Multi-Beta Multi-Strategy ERC index. This new strategy ETF strengthens our Smart Beta equity range following the success of our global Multi Smart Beta exposure launched in 2014. Amundi’s status as one of the world’s leading asset managers means our index management team has significant bargaining power when dealing with portfolio implementation.
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