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Precision medicine, a novel model that proposes the customization of healthcare, with treatments, practices or products being tailored to a subgroup of patients, instead of a one-drug-fits-all model, is widely regarded as a fundamental breakthrough that will mark the start of a whole new era for medical practice. In the same spirit, one could argue that investment management is justified as an industry only to the extent that it can demonstrate a capacity to add value through the design of dedicated and meaningful investor-centric investment solutions, as opposed to one-size-fits-all manager-centric investment products. In this context, and to emphasize the parallel with what we are seeing in the healthcare industry, the term precision investing can be used to describe this trend from generic products to personalized solutions in investment management.
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Since 2006, EDHEC-Risk Institute has annually surveyed European professional investors about their views and uses of ETFs, and more recently about their use of smart beta and factor investing strategies, as part of the Amundi research chair at EDHEC-Risk Institute on "ETF, Indexing and Smart Beta Investment Strategies". In this 13th edition of the survey, we felt it was time to add a focus on SRI (Socially Responsible Investing)/ESG (Environmental, Social, Governance) investing, both in the context of ETFs and smart beta and factor investing strategies. The notable results of this year were a slowdown in the use of smart beta and factor investing strategies, and a growing interest in the integration of an SRI/ESG component into investment. |
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Industry Analysis |
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Following the coronavirus crisis, Riccardo Rebonato, Professor of Finance at EDHEC Risk-Institute, examines where bond prices will go amid ongoing central bank quantitative easing and the risk of rising inflation. Quantitative easing started because traditional monetary actions at the short end of the yield curve began to hit against the zero bound. As long-dated Treasury bond yields in US dollars, euros and sterling are now close to or below zero, and controlled asset bubbles are developing in more and more assets, central banks are running out of ammunitions. |
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To supplement replacement income provided by Social Security and employer-sponsored pension plans, individuals need to rely on their own saving and investment choices during accumulation. Once retired, they must also decide at which rate to spend their savings, with the usual dilemma between present and future consumption in mind. This Element explains how financial engineering and risk management techniques can help them in these complex decisions.
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Sophisticated algorithmic techniques are complementing human judgement across the fund industry. Whatever the type of rebalancing that occurs in the course of a longer horizon, it probably violates the buy-and-hold assumption. In this article, the authors develop the methodology to predict, dissect and interpret the h-day financial risk in data-driven portfolios. Their risk budgeting approach is based on a flexible risk factor model that accommodates the dynamics in portfolio composition directly within the risk factors. |
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Publications by ERI Associate Researchers |
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This paper investigates the mean-variance and diversification properties of risk-based strategies performed on style or basis portfolios. The authors show that the performance of these risk strategies is improved when performed on portfolios sorted on characteristics correlated with returns and is highly sensitive to the sorting procedure used to form the basis assets. Whereas the extant literature provides mixed support for the outperformance of smart beta strategies based on scientific diversification, our designed strategies outperform both the market model and multifactor model. Their testing framework is based on bootstrapped mean-variance spanning tests and shows valid conclusions when controlling for multiple testing, transaction costs, and luck from random basis portfolio construction rules.
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This paper employs a robust portfolio sorting procedure to factor size characteristics into returns. The US size anomaly then boils down to a pure seasonal effect, fully supporting the "tax-loss-selling" hypothesis. We build a long-short calendar trading strategy, easily reproducible by an asset manager, being long the Smallminus-Big (SMB) portfolio in January (or in Q1), staying in cash in Q2 and Q3, and shorting SMB in Q4. The strategy achieves a mean yearly return close to 11% from 1963 to 2019. It does not decay over time, remains steady across all subperiods, and resists to the detection of false discoveries. |
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Institutional investors have begun to recognize the importance of risk factors in asset allocation decisions, even though factor investing has had mixed results over the last few years. Lionel Martellini, has been working to combine the benefits of liability hedging and performance improvement through factor investing. He explains how to integrate some of the most significant advances in institutional money management. |
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This webinar provided a unique opportunity to engage with EDHEC-Risk's director on retirement investing, a subject which is topical in the investment management industry. During this digital event hosted by EDHEC Alumni, Lionel Martellini examined the following issues: 1/ he presented the looming pension crisis 2/ he gave an overview of currently available retirement products and 3/ he introduced the concept of flexicure retirement solutions. |
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As we enter a new decade, EDHEC-Risk Institute takes a look back at the most read articles of 2019, covering a diverse range of topics that are at the heart of its expertise, including: sustainable investing, factor investing, machine learning and retirement investing.
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During the webinar, Professor Gianfrate will discuss the relation between a firm's exposure to climate risks, measured as level of CO2 emissions and carbon intensity, and Merton's distance-to-default, a measure of creditworthiness widely used by rating agencies and investors. He will also address the policy implications and the threat the exposure to climate risks poses to the global financial stability. |
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He is the Principal Director of Investment Strategy at PGGM in the Netherlands. PGGM is a leading Dutch pension administrator with roots in the healthcare and social work sectors. It manages about €268 billion in pension assets for more than 2.5 million Dutch participants. PGGM provides services in pension fund management, comprehensive asset management, management support, and policy advice to various pension funds. |
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EDHEC Business School and MINES ParisTech are launching a new double degree in Climate Change & Sustainable Finance. This new joint programme will train a new generation of financial professionals, with the ability to combine financial expertise with a sound understanding of the scientific and engineering challenges associated with the transition to a low-carbon economy. |
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We are honoured to announce that the Colombian Climate Asset Disclosure Initiative (CCADI), has appointed Prof. Daniel Mantilla-Garcia as member of its advisory board. CCADI is a multi-year initiative that promotes climate smart investments, and involves investors, the government and civil society to advance in this purpose. |
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24 October 2020 |
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27 October 2020 |
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4 November 2020
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5 November 2020
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25 November 2020 |
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Press Review |
EDHEC-Risk Institute has been cited widely in the business and industry press. A selection of articles may be found below.
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- "Avoiding 'sin stocks' is no longer enough for ESG ETFs", Financial Times (01/10/2020)
- "Which areas do investors want to see further ETF product development?", ETF Stream (01/10/2020)
- "The Traditional Diversified Fund is outdated – greater customisation of the client's investment solution is required", Kiwi Investor (21/09/2020)
- "Principal Director of Investment Strategy at PGGM appointed as new chairman of EDHEC-Risk Institute's international advisory board", Institutional Asset Manager (15/09/2020)
- "Best Python Courses for Banking, Finance & FinTech (2020)", Bankers By Day (09/09/2020)
- "EDHEC-Risk Alternative Indexes: A Strong Positive Month For Hedge Fund Performances", Mondovisione (07/09/2020)
- "Best Investing Courses on Coursera", Benzinga (31/08/2020)
- "Factor investing's relevance to institutional investing under the spotlight", ETF Stream (12/03/2020)
- "La pierre-papier a moins séduit au premier semestre", Le Monde (31/08/2020)
- "EDHEC and MINES launch Sustainable Finance degree", Global Education Times (19/08/2020)
- "June was a positive month for hedge fund performance, says EDHEC-Risk", Hedge Week (11/08/2020)
- "Strategic Plan For A Sustainable Business School", Poets & Quants (10/08/2020)
- "Why a top quant wants to be wrong about markets", Risk.net (24/07/2020)
- "Defining and exploiting value in US Treasury bonds", ETF Stream (18/06/2020)
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