“What we often tend to see is when people try to implement value, momentum or volatility strategies, they tend to overcomplicate them and move away from the simple way they are defined in academia,” Shirbini says. “There is academic research that shows that as soon as you start to overthink a particular factor, you start to introduce more idiosyncratic risk, so the key is to be parsimonious. You should be able to identify it in a simple manner.”
Simplicity also minimizes fund expenses—Global X’s Scientific Beta U.S. ETF carries a 0.35 percent gross expense ratio, while the other three Scientific Beta ETFs have 0.38 percent in expenses - all the funds come with a fee waiver of 0.19 percent for a year.
“We think it’s a huge advantage to be able to match strategies based on academic research with the accessibility of ETFs,” Jacobs says. “For us, it comes down to the quality of the index itself. With smart beta, the quality of index construction becomes a more important aspect when you look at returns and risk-adjusted returns. We believe ERI Scientific Beta has come up with the most robust ideas in this space.”