The new solution offers long term investors a more efficient way of capturing equity market beta while avoiding the limitations of both market cap weighted indices and alternative weighted schemes – namely exposure to poorly compensated risks, poor diversification, failing to look towards the future and cost leakage.

Hosting a series of roundtables for Australian institutional clients and asset consultants this week, Tim Gardener, Head of Institutional Client Strategy, AXA IM, commented:

“Most investors are now aware of the pitfalls of market cap weighted indices. However, we believe that while alternative solutions go a long way towards overcoming the drawbacks of market cap none address the problems inherent in index tracking.”

The AXA IM SmartBeta Equity strategy is constructed around the same three building blocks as AXA IM’s SmartBeta Bond strategies, which have already seen strong demand from investors globally. 

AXA IM’s three SmartBeta building blocks are: 

• Filter: rules based filters aim to reduce exposure to uncompensated risks
• Diversify: intelligent diversification aims to avoid concentration risk while managing liquidity
• Implement: rebalancing and trading in a way that leverages our experience as investors, while keeping costs low.

Australian investors can also now access the SmartBeta Bond Strategies via the newly launched AXA World Fund Global SmartBeta Credit Bonds. 

AXA IM launches new beta harvesting guidelines 
To help guide investors through the benefits of SmartBeta solutions AXA IM also today released a new white paper “Investing in Equity: Smart Beta or Dumb Beta?”. The paper looks to shift the focus from which index an investor should blindly follow, to deliver solutions to help investors access equity beta cheaply and efficiently. 

“In harvesting beta, a smart investor is not looking to take ‘bets’ as an active manager might, although they are persuaded of the need to avoid the pitfalls of blindly tracking an index. The smart investor recognises that equity investing involves taking on risk, but wishes to limit both longer term loss of wealth and shorter term downside volatility by avoiding, as far as possible, the stocks that are overvalued when markets head south,” explained Tim Gardener.

In designing the strategy AXA IM has leveraged its AXA Rosenberg team’s expertise in engineering and managing quant equity strategies. The AXA IM SmartBeta Equity strategy will be managed by a team from AXA Rosenberg and benefits from their experience of constructing and running portfolios that reject market capitalisation and target desirable fundamental features. The approach uses proprietary risk filters and leverages AXA Rosenberg’s research and data platform.

Demand for SmartBeta solutions rising in Australia, and globally
AXA IM has a long and solid track record of managing SmartBeta type strategies for its insurance parent AXA Group. Craig Hurt, AXA IM’s Director of Australia & New Zealand, anticipates increased interest in these solutions as the 1 July MySuper deadline draws closer and many funds are still grappling to strike the right cost/ return balance to deliver the best outcome for members.

“Following the GFC, many local and global investors shifted their active global equity funds to passive management and by and large that has proven to be a correct decision over the last five years. Economic history however teaches us that extended periods of monetary stimulus, such as we have witnessed these past few years, inevitably lead to bubbles and bubbles by their very nature cannot be predicted with any consistent level of accuracy.

“We’re concerned that many investors in passive global equities will find themselves nursing avoidable losses in a few years time. We believe the SmartBeta global equity strategy offers a sensible middle ground between blind index tracking and expensive active management strategies,” Mr Hurt concluded.

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