Scientific Beta has launched the Scientific Beta US Inflation indices, its first suite of macroeconomic factor indices.
The inflation indices provide long-term equity performance with additional inflation protection compared to a traditional cap-weighted equity index.
These indices correspond to a genuinely important subject for institutional investment, because in the event of inflation they procure a higher asset value (surplus) that could offset the impact of inflation on the revenue needs of future pensioners.
This capacity to produce strong conditional performance does not result in a high level of tracking error with respect to the cap-weighted benchmark, like with many indices, and ultimately in poor unconditional performance. Indeed, through their sound diversification, the Scientific Beta US Inflation + indices also deliver a satisfactory return for the equity risk taken over the long term. This distinguishes the strategy from other strategies that may have interesting conditional properties, but have disappointing Sharpe ratios over the long term, as is the case for sector strategies like financials or REITS. Moreover, it should be noted that REITS or commodities do not have particular qualities to protect investors against inflation surprises.
On the occasion of the launch of the Scientific Beta US Inflation indices, Dr Noël Amenc, CEO of Scientific Beta, says: “It is important to recall that it is unexpected inflation (and not the level of inflation or expected inflation) that pose a problem for investors in risky assets, because these surprises have not yet been priced. It is clear, and this can be observed over the whole sample and to an even greater degree in the first half of 2021, that inflation surprises have a strong and contrasted impact on the performance of equities. With more than 3% accumulated outperformance since the beginning of the year, our Scientific Beta US Inflation + indices have been able to protect the equity investment against this unexpected increase in inflation.”
