201509 stoxxcfa ansa · pdf filepassion for total+return is smart+beta really that...
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passion for total return
Is smart beta really that smart, inexpensive and good for investors?
Dr. Andreas Sauer, CFAMunich, September 2015
The source of beta and is there really „dumb" beta?
• origins of „beta“ in the CAPM
• „beta“ in its original meaning measures sensitivity of an asset or portfolio to the market
portfolio
• market portfolio:
• aggregate portfolio of all assets = aggregate portfolio of all investors
• must hold each asset in proportion to its market capitalization
• earns systematic risk premium
• the average investor is not “dumb”
• issues with market cap weighted portfolios as benchmark are well known:
• empirically inefficent
• allocation of capital along “size” of a company
• size measured by “price x number of stocks”
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The origins and evolvement of smart beta
• compared to the market portfolio all "smart beta" strategies differ in two dimensions: stock selection and
stock weighting
• supposed to be “smart” because they are build on for decades well known anomalies
• low-‐vol anomaly: Haugen (1972)
• firm size effect: Banz (1981)
• value effect: Basu (1977)
• momentum: Jegadeesh/Titman (1993)
• and of course Fama/French (1992)
• triumph of quants: active quant equity has always been smart beta investing
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Why so much excitement now?
• anomalies are know for decades
• low volatility equity strategies attractive after the financial crisis
• disappointment with traditional managers
• advances in computer and data technology: everyone can become a quant
• measuring “factor exposure” for performance evaluation has become industry standard (what is
true alpha?)
• perfect naming
• “promise” of cheap, easy and transparent access to quant strategies and factor exposure
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US equity factors: rolling 5-‐year t-‐stats
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source of raw data: www.aqr.com/library/data-‐sets
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1931 1936 1941 1946 1951 1956 1961 1966 1971 1976 1981 1986 1991 1996 2001 2006 2011
Rolling25!year2t!stats
BAB SMB HML UMD
US equity factors: rolling 5-‐year t-‐stats
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source of raw data: www.aqr.com/library/data-‐sets
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2007 2008 2009 2010 2011 2012 2013 2014
Rolling15!year1t!stats
BAB SMB HML UMD
Smart beta as a blend of active and passive?
• genuine smart beta is a highly active and sophisticated portfolio strategy
• how is Value/Growth/Quality measured?• risk model in low volatility strategies• rebalancing interval
• smart beta ETFs are not a "blend" of active and passive
• passive:• easy to replicate• transparent for everyone• no discretion, clear rules
• as an index (and ETF) smart beta strategies need to be heavily “constrained”
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Smart beta not cheap anymore
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STOXX® Global 1800 Minimum Variance Unconstrained
STOXX® Global 1800 STOXX® Global Total Market
Gross dividend yield2) 2.8% 2.3% 2.2%
Price/earnings (trailing)3) 19.06 19.56 19.38
Price/earnings (projected)3) 18.64 16.02 16.03
Price/book 2.22 0.46 0.55
Price/sales 1.33 1.32 1.32
Price/cash flow 2.03 1.16 1.16
Beta (3y) vs STOXX Global 1800 0.54
5y volatility 8.5% 13.7% 13.2%
3y Sharpe ratio2) 0.19 -‐0.25 -‐0.48
Maximum drawdown3) 8.3% 21.8% 22.9%
source: STOXX
Smart beta performance
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!50%
0%
50%
100%
150%
200%
250%
Juni+03 Juni+04 Juni+05 Juni+06 Juni+07 Juni+08 Juni+09 Juni+10 Juni+11 Juni+12 Juni+13 Juni+14 Juni+15
cum.+ outperformance+ vs.+Global+ 1800+NR+EURO
Global+1800+MinVar+unconstrained+NR+EURO Global+Strong+Quality+50+NR+EURO
Global+3000+Small++NR+EURO STOXX®+Global+Select+Dividend+100+NR+EUROsource: STOXX
Summary
• moving away from market cap weighting makes a lot of sense
• it will still be more important to decide when to invest in what beta than the decision between smart and dumb beta
• “factor investing” : be aware of the difference between risk premia and systematic risk premia
• NEVER buy smart beta because of historical outperformance
• beating the market is not easy (it looks easier on paper …)
• the average investor is not “dumb”
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Conclusion
that smart
inexpensive
and good
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✔
❌
✔
Is smart beta really
for investors
Contact
12
Dr. Andreas Sauer, CFAansa capital management GmbHHochstraße 264625 BensheimGermany
T +49 6251 85693-‐[email protected]
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