Research launched today from AXA Investment Managers’ (AXA IM) Rosenberg Equities team has identified new ways to consider investment in smart beta within the context of the equity earnings cycle.

“Risk premia investing – using the earnings cycle to design robust strategies” will be presented by AXA IM at a series of roundtables for Australian institutional clients and consultants this week and builds on AXA IM Rosenberg Equities’ thirty years of fundamental equity research.

Jeremy Baskin, AXA IM Rosenberg Equities global chief executive officer and global chief investment officer, said the research was designed to help investors consider the connection between risk premia and earnings dimensions which could contribute to achieving better investment outcomes.

“The research draws on AXA IM Rosenberg Equities’ commitment to viewing global equity strategies – alpha or beta – through an earnings lens.  We focused on the link between risk premia ideas and underlying earnings profiles to help investors understand drivers of reward – and importantly, the persistence arguments – behind select smart beta strategies.”

Mr Baskin said the research served as a reminder that many of the equity strategies referred to as smart beta strategies have their origins in risk premia or ‘factor’ investing.

“The ideas that underlie smart beta investing are not new, but are being applied in a novel way. We’ve outlined an earnings-based framework for thinking about the reward to value, momentum, quality and low volatility equity strategies.

“As advocates of both alpha and beta investment solutions, we believe there is real benefit in investors understanding the link between core risk premia ideas and the dimensions of earnings that drive reward in equity markets. Ultimately we want to challenge investors to demand and apply the same level of rigour to their beta portfolios as they would for alpha,” said Mr Baskin.

Robust smart beta ideas are ones grounded in the real economy

By focusing on the earnings profile of risk premia ideas, and relating those ideas to the earnings cycle itself, Craig Hurt, AXA IM’s director of Australia and New Zealand, said the firm can build smart beta ideas that are grounded in the real economy, rather than statistical backtesting.

“The earnings cycle model can be useful for understanding investors’ risk taking behaviour and provides examples of how blending risk premia can benefit investors through outcome-oriented approaches,” he said.

Mr Hurt added that AXA IM believes in both alpha and beta opportunities in the equity market and is encouraged to see so many asset owners embracing new strategies that could contribute to achieving better investment outcomes.

“At the same time we would urge caution. In our conversations with Australian institutional investors we emphasise that the smart aspect of smart beta investing requires more nuanced and sophisticated weighting, blending and implementation techniques than those found in many off the shelf risk premia products,” Mr Hurt concluded.

AXA IM continues to see growing demand from local and global investors for its smart beta solutions, with the firm now managing $7.4bn in smart beta equity strategies globally (as of 30 September 2015). Locally, the firm is managing $70m in an Australian domiciled pooled fund, which is 6.3% ahead of benchmark since inception (to 30 September 2015).

A copy of “Risk premia investing – using the earnings cycle to design robust strategies” is available on request.

Source: AXA

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