London-based investment research and advisory firm Elston Consulting has celebrated the one year anniversary since the launch of its two smart beta indexes, reflecting the success of smaller players in the smart beta space.

The Elston Strategic Beta Global Maximum Sharpe Index and the Elston Strategic Beta Global Minimum Volatility Index use a risk-based methodology compared to the more commonly used factor-based approach. The dynamic, multi-asset strategies use long-only ETFs and are denominated in British pounds.

Henry Cobbe, Head of Research, Elston Consulting.

The Global Maximum Sharpe Index uses an optimisation algorithm to provide the highest ex-post Sharpe ratio (risk-adjusted return in excess of the risk-free interest rate) of a portfolio with a maximum of 50 securities subject to various constraints. The index recorded a 5.3% annualised return and 8.1% annualised volatility over the past five years, using back-tested data.

The Global Minimum Volatility Index also employs an optimisation algorithm to minimise the ex-post combined volatility of the portfolio subject to various constraints. The index has recorded a 4.7% annualised return and 5.4% annualised volatility over the past five years, using back-tested data.

Henry Cobbe, Head of Research, Elston Consulting, commented: “We are glad to have the first full year of live pricing for these indices. The aim is that these strategies do what they say on the tin, and we are very satisfied with the results to date. A systematic approach helps to provide investment discipline in difficult markets.”