Andy Scott


“Trustees need to understand that this is a long-term game and should not be looked at quarterly.” Andy Scott, Dalriada Trustees


Barron: One of the interesting things about equity indices is that performance depends on which bench- mark you choose. We have seen mass product proliferation with more than 3 million indices, which is 70-fold the number of equity securities – and they keep coming. The scary thing about indices is a shifting of the burden onto the asset owner and their consultants to make decisions. When it comes to implementing that chosen portfolio, I deliver the return that the index creates and so it shifts that responsibility. Understanding what goes into construction is critical. Traditional factors perform the way you would expect. Some happen to be procyclical, some are not. When markets pull back, implementing those factors in a long-only equity portfolio can deliver drastically different results. A simple decision like sector neutralising a value score is the difference between having Apple feature majorly in a US value index or not having it at all. Obviously, the one with Apple in over the past five years did well, the other didn’t. You see double digit differences in returns from indexes that say the same thing. That is the scary thing with this space. You need to tie the objectives to index methodology to ensure that the outcomes are going to match what your expectations are.


10 September 2019 portfolio institutional roundtable: Factor investing


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