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Global X launches family of Scientific Beta ETFs


Global X Funds, a New York-based provider of exchange-traded funds (ETFs), has launched a family of four ETFs based on EDHEC-Risk Institute's Scientific Beta indexes.

The new ETFs are: Global X Scientific Beta US ETF (SCIU); Global X Scientific Beta Europe ETF (SCID); Global X Scientific Beta Japan ETF (SCIJ); and Global X Scientific Beta Asia ex-Japan ETF (SCIX).

The Scientific Beta ETFs provide core equity exposure to the US, Europe, Asia ex-Japan and Japan. The new funds may be considered alternatives to actively managed funds as they seek to outperform market cap-weighted indices at a fraction of the fees typically charged for active management. The funds seek to deliver outperformance by tracking academically driven multi-factor indexes developed by ERI Scientific Beta.

According to Morningstar, smart beta ETFs had USD402 billion in assets at the end of 2014, up fourfold from $97 billion at the end of 20091. The first wave of smart beta strategies sought outperformance by providing exposure to a specific characteristic or factor, such as "value". Representing the next generation of smart indexing, the Scientific Beta ETFs capture four factors simultaneously: Value, Size, Momentum and Low Volatility. While each individual factor has historically outperformed the market in the long term, the Scientific Beta strategy seeks to smooth the cyclicality of their returns and deliver more consistent outperformance by combining the factors together.

A key to the Scientific Beta strategy is its unique weighting scheme which combines five different weighting strategies. Traditional market capitalisation indexes are often plagued by lack of diversification because most of their exposure is concentrated in a few large names. At the same time, alternative weighting strategies utilised by most existing smart beta ETFs tend to inadvertently bias certain factors, such as equal weight strategies favouring small cap stocks.  By combining five unique weighting schemes, the Scientific Beta ETFs seek to maximise diversification and minimise inadvertent factor tilts.

"ERI Scientific Beta's methodology has been developed over years of thorough academic research, but so far its use has been mostly limited to institutional investors," says Bruno del Ama, CEO of Global X Funds. "We are excited to bring this premier smart beta strategy to a broader audience through the ETF structure."

"We designed our multi-factor indices to give investors exposure to well-rewarded factors, while seeking to reduce unrewarded risks through diversification," says Eric Shirbini, Global Product Specialist at ERI Scientific Beta. "Our academic approach has resulted in creating one of the most robust smart factor indices on the market."

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