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Factor Exposures of Thematic Indices

31.August 2021

Numerous new businesses are emerging related to autonomous traffic, clean energy, biotechnology, etc. Without any doubt, these new companies look promising and at least the technology behind them seems to be the future. Moreover, this novel trend is also supported by the most prominent index creators S&P and MSCI. Both providers have created numerous thematic indexes connected to these hot industries. The popularity has caused that ETFs are nowhere behind, and as a result, these thematic indexes could be easily tracked. However, popularity itself does not guarantee the best investment, and we should be interested in these indexes in greater detail. A vital insight provides the novel research paper of Blitz (2021). The findings are interesting – the thematic investors bet against quantitative investors or, more precisely, against the most common factors that are well-known from the asset pricing models.

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Settling the Size Matter

17.September 2020

Equity factors are not as straightforward as they may seem to be. There is an ongoing debate about their usability or expected return since they have a cyclical nature. Moreover, the modern trend of smart beta only fuels this debate. Novel research by Blitz and Hanauer examines the size factor and sheds some light on this elusive anomaly. The size seems to be weak as a stand-alone factor, but it’s far from useless. The academic paper suggests that the size factor can be an important addition to the other equity factors as it helps to unlock the full potential of the quality, value or momentum factors.

Authors: Blitz, David and Hanauer, Matthias Xaver

Title: Settling the Size Matter

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