Smart Beta aims to increase diversification and improve risk management, whilst seeking to capture new sources of performance.
Given the current context, yield-starved institutional investors are turning towards riskier assets while still seeking to limit potential drawdown. By definition, such asset classes tend to be more volatile and more risky than bonds. Smart Beta, however, could provide a solution for investors.
A Smart Beta approach aims to increase diversification and improve risk management while seeking to capture new sources of performance. Today, at Amundi we consider two major families. The first is made up of approaches that focus on risk management, such as diversification and “minimum variance” strategies, which aim to construct portfolios to minimise drawdowns.
The second is made up of factor-based strategies, which involve structuring a portfolio to take advantage of risk premia. Factors can be implemented alone or as part of a multi-factor strategy. We believe allocation between factors must be risk-based to address new market regimes and ensure diversification.
These approaches are currently quite popular with institutional investors. More and more are choosing to consider them as core to the portfolio, and to complement them with riskier satellite strategies to capture a potential short-term performance. This attractiveness is compounded by the fact that Smart Beta solutions can be easily customised to take into account the specific requirements of each investor. Of course, this relies on asset managers having the necessary skills and size for core portfolio management.
Questions to Bruno Taillardat, Global Head of Smart Beta and Factor Investing at Amundi
Can you tell us about Smart Beta at Amundi?
We manage over €12bn in Smart Beta, covering both solutions based on efficient risk management and factor investing. These are available under passive (index-based or ETF) and active management. Our teams also leverage Amundi’s other resources, such as our extensive quantitative research and ESG (environmental, social and governance) capabilities. This allows us to build customised products for our clients, one of Amundi’s key strengths.
Could you give an example of this?
Amundi seeks to be a partner for investors. We like to be involved in the development process quite early on, to provide solutions and advice suited to investors’ needs and constraints. For example, we can carry out a factor analysis of a portfolio to identify if there is a bias towards one of the factors and possibly suggest diversification. We have also developed solutions that combine our Smart Beta approach with ESG analysis or portfolio decarbonisation.
Do you also offer solutions that take into account regulatory constraints?
Institutional investors tend to express a keen interest in solutions that help lower the cost of capital. This can be done using option strategies or by offering a capital guarantee, an area in which Amundi has great expertise. Smart Beta solutions are suited to this because they make it possible, by construction, to absorb market downturns and thus to frame hedging costs.
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Information considered accurate as of 09/2017.
The exactness, exhaustiveness or relevance of the information, the prevision and analysis provided is not guaranteed. It is based on sources considered as reliable and may change without prior notice. It is inevitably partial, provided based on market data stated at a particular moment and is subject to change without prior notice.
Financial promotion issued by Amundi Asset Management, with a share capital of EUR 1 086 262 605 and Registered office at : 90 boulevard Pasteur 75015 Paris France – 437 574 452 RCS Paris – which is authorised by the AMF under number GP04000036.
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