Factor-based investing is smart beta done old school.

Today, most smart beta funds rely on a single index of equities weighed by one or more factors like value, momentum and volatility, while others, such as funds sub-advised by Austin, Texas-based Dimensional Fund Advisors, use factors to select and time stock trades.

Global X, a New York-based fund manager, has taken an entirely different approach—creating a bundle of indexes based on individual factors based on academic metrics, then combining those indexes into funds that encompass multiple factors and weighting approaches.

As a result, Global X’s Scientific Beta suite of ETFs addresses several shortcomings in many smart beta funds through strategies designed using research from the EDHEC-Risk Institute, a French financial research and education institution.

The suite of funds was designed to give investors geographic diversification; the funds represent markets in the U.S., Europe, Japan and Asia outside Japan.

While Dimensional Fund Advisors has been using factor-based investing supported by its founders’ research for more than 30 years, Jay Jacobs, director of research at Global X funds, traces the strategy’s history back farther than that.

“Factor investing goes back as far as Benjamin Graham and Warren Buffett and the other people who first identified the benefits of value stocks,” says Jacobs. “Our role in that history is being able to partner with Scientific Beta to bring a product that is best of breed from an academic perspective to clients in a tax-efficient, liquid investment vehicle.”

The concept is simple, says Eric Shirbini, global product specialist at EDHEC-Risk Institute’s Scientific Beta division in London—it is to create indexes that give investors exposure to market risk and returns, or beta, plus an additional risk premium.

“Academic research has shown that there are some risk premiums that provide a return over and above the market average,” Shirbini says. “By taking exposure to certain risks, you can get higher returns than the market. That’s what factor investing is all about.”

Global X’s indexes represent value, size, momentum and volatility premiums, all of which have produced returns over and above the market in academic research.

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