Smart beta meets flexible multi-asset

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Please note that this article may contain technical language. For this reason, it is not recommended to readers without professional investment experience.

Smart beta has become a well-known investment concept in the asset management industry. Such factor-based investment techniques were firstly applied to equity investments. Many investors have become familiar with the most popular equity factors, such as value, momentum, quality and low risk. While these factorial approaches are already well developed in equity markets, their implementation in other asset classes is relatively recent. THEAM is one of the first asset managers in Europe to extend the application of factor investing to bond portfolios.


Smart beta multi-asset

Thanks to this, we can now offer investors a smart beta multi-asset solution. We suggest a straightforward equity-bond multi-factor investment product with a suite of diversified smart beta factors. Why multi asset? Because equities and bonds tend to perform at different times, so we believe this simple diversification can smooth volatility and enhance total returns. Furthermore, factor-driven excess returns from equity and bond investments are weakly correlated as they are based on distinct risk factors or market anomalies. This de-correlation at the factor level can provide additional diversification benefits.

Combining flexibility with a smart beta portfolio

Flexible funds are also popular investment strategies that have seen strong demand from investors in recent years. The current economic environment of very low interest rates and a fragile global economic recovery makes it far more difficult for investors to achieve their desired returns from conventional financial investments. In this context, flexible management, for example via a non-benchmarked investment process, can provide a solution as it can adapt investments in response to changing financial market conditions.

THEAM’s expertise in flexible management involves dynamic beta allocation and disciplined risk management: market exposures will be adjusted in line with different economic cycles and rigorous risk control aims to smooth portfolio drawdowns during market turbulence.

In our view, a flexible investment process is the best adapted framework to assemble one’s smart beta bricks efficiently in an all-in-one solution. Such a portfolio can thus benefit from two complementary sources of performance: dynamic allocation based on macroeconomic cycles and excess returns from alpha factors.

Exhibit 1: Illustration of flexible management applied to a smart beta portfolio

smart beta meets multi asset

Source: THEAM, for illustration purposes only

Yanning Ma

Head of Investments and Financial Engineering, BNP Paribas Epargne & Retraite Entreprises

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