ERI Scientific Beta dynamic defensive solution adopted by major North American asset owner

ERI Scientific Beta dynamic defensive solution adopted by major North American asset owner

OPTrust, which invests and manages one of Canada's largest pension funds, invests in the Scientific Beta solution

OPTrust is investing in an equity portfolio that is benchmarked to the Scientific Beta Developed Multi-Beta Multi-Strategy Relative Volatility (90%) Solution.

One of the characteristics of traditional defensive strategies such as Minimum or Low Volatility is that they are concentrated in low volatility or low beta stocks. Therefore, while over a very long period these defensive strategies outperform cap-weighted indices, over the short term, in a bull market, they could seriously underperform

It is in this context that researchers from EDHEC-Risk Institute and ERI Scientific Beta have developed a new approach in terms of multi-factor dynamic defensive strategies. The Scientific Beta Multi-Beta Multi-Strategy relative volatility solution indices are no longer exposed to low volatility factors alone but obtain a significant reduction in portfolio volatility through factor diversification. Moreover, these new strategies have a variable defensive bias, which corresponds to dynamic allocation between smart factor indices based on market volatility. It involves ramping up the defensive profile of the strategy when high market volatility makes it necessary. This new approach to defensive smart beta provides not only excess return but also a significant reduction in volatility over the long term compared with cap-weighted benchmarks, while at the same time outperforming in bull markets.

The benefits of dynamic allocation are even more evident in extreme bull markets relative to low volatility strategies, with higher probabilities of outperformance in the short- and medium-terms and a lower maximum relative drawdown.

Noël Amenc, CEO of ERI Scientific Beta, said, "The beauty of ERI Scientific Beta's dynamic defensive solution is that it is defensive when needed. This is reflected in the dynamic nature of the approach. Unlike most defensive approaches on the market, our approach does not focus on a low volatility/low beta factor, but is a diversification approach based on the flagship Scientific Beta Multi-Beta Multi-Strategy indices."

James Davis, CIO of OPTrust, said, "We worked closely with the ERI Scientific Beta team to evaluate different smart beta strategies that aligned with our Member Driven Investing investment objectives. The Multi-Beta, Multi-Strategy solution we chose provides for downside risk mitigation. By employing a dynamic strategy that reduces volatility in times of market stress, we can be more comfortable with our overall equity exposure."