Smart beta index provider ERI Scientific Beta has announced a fresh approach to index pricing that may disrupt the traditional model of fixed fees on assets under management. The commercial indexing offshoot of EDHEC Risk Institute, a Paris-based financial research centre, will launch a new pricing scheme that relates their fees directly to the performance of their smart beta indices.
Noël Amenc, CEO of ERI Scientific Beta.
Investors will be able to request a pure performance fee structure that levies charges only if the index has actually outperformed its cap-weighted benchmark.
This option will be made available from 1 June 2016, whereby those who subscribe to the alternative fee structure will pay zero fixed fees and will only pay variable fees if the flagship Scientific Beta Multi-Beta Multi-Strategy indices outperform their reference cap-weighted index.
Commenting on this new model, Noël Amenc, CEO of ERI Scientific Beta, said: “Our rationale for this mandate offer is that smart beta providers’ claims on the quality and robustness of their strategies should materialise in their live performance. ERI Scientific Beta’s initiative is intended to provide consistency between the smart beta provider’s revenues and the quality of its offering. It is also testimony to the confidence we have in the performance of our smart beta indices, and notably our flagship Scientific Beta Multi-Beta Multi-Strategy indices, which have outperformed their cap-weighted equivalent by 4.51% on average since their live date.”
ERI Sci Beta’s multi-strategy smart factor indices maximise the diversification of strategy-specific risks by using an equal-weighted mix of the most popular diversification strategies (maximum deconcentration, maximum decorrelation, diversified risk weighted, efficient minimum volatility and efficient maximum sharpe ratio) and as such provide performance that, over the long term, is on average 35% better than that of traditional factor indices, according to ERI Scientific Beta.
Equal weighting between the multi-strategy factor indices (Scientific Beta Value Multi-Strategy Indices, Scientific Beta Momentum Multi-Strategy Indices, Scientific Beta Mid Cap Multi-Strategy Indices, and Scientific Beta Low Vol Multi-Strategy Indices) results in Scientific Beta Multi-Beta Multi-Strategy indices.
The division’s multi-strategy smart beta indices are available for all developed world geographical regions including USA, UK, eurozone, Developed Europe ex UK, Japan, Developed Asia Pacific ex Japan, Developed ex USA, Developed ex UK and Developed Global.
ERI Scientific Beta has attracted more than $10bn in assets under replication for its smart beta indices in three years.
The range of available ETFs tracking ERI Scientific Beta indices include:
Global X Scientific Beta US (SCIU)
Global X Scientific Beta Europe (SCID)
Global X Scientific Beta Japan (SCIJ)
Global X Scientific Beta Asia ex-Japan (SCIX)
Amundi ETF Global Equity Multi Smart Allocation Scientific Beta UCITS ETF (SMRT)
Amundi ETF Europe Equity Multi Smart Allocation Scientific Beta UCITS ETF (SMRE)
ETFS Diversified-Factor U.S. Large Cap Index Fund (SBUS)
ETFS Diversified-Factor Developed Europe Index Fund (SBEU)
Morgan Stanley Scientific Beta Global Equity Factors UCITS ETF (GEF LN)
Morgan Stanley Scientific Beta US Equity Factors UCITS ETF (USEF LN)