Evidence-based investing: smart investing, smart marketing or a bit of both?

Key takeaways: The principles of evidence-based investing are solid, but the backward‑looking nature of the evidence means it can miss shifts in market regimes Discipline matters, in our view, but so does adaptability and adding measured, research-driven dynamic asset allocation helps capture opportunities and manage risks as conditions change We believe the best outcomes blend structure with a systematic, forward-looking framework offers a more resilient path for navigating uncertain markets

We need to be honest. When we first heard about ‘evidence-based investing’, it immediately reminded us of ‘smart beta’, another term born out of our industry 20 years ago. Both sound like absolute no-brainers. Who wouldn’t like investing grounded in ‘evidence’ or market exposure that’s ‘smarter’ than other ‘dumb’ beta options out there. 

However, as the last two decades have shown, even ‘smart’ approaches have their ups and downs. We believe it’s worthwhile to use these learnings and consider a slightly more nuanced approach to evidence-based investing today. 

First, we agree with many of the principles that sit behind evidence-based investing, and in many respects our philosophy behind our diversified multi-asset strategies and model portfolios is built on the same foundations. A robust strategic asset allocation, grounded in long-term empirical evidence of how asset classes behave and interact, is central to our approach. We share the belief that diversification is the cornerstone of good risk management, that long-term returns are driven primarily by exposure to risk premia rather than stock-picking skill, and that costs matter for long-term outcomes.

Process vs. personality

Indeed, our multi-asset range first became popular because it was rooted in delivering a low-cost, index-based implementation model designed to challenge a traditionally more expensive part of the multi-asset market. Like evidence-based investors, we seek discipline over discretion, process over personality, and we are acutely aware of how behavioural biases can undermine outcomes.

Where we differ is not in rejecting the evidence, but in recognising its limits. By definition, evidence is backward-looking. We believe this makes evidence-based investing similar to driving while looking at the rear-view mirror. Its focus is on how asset classes and factors have behaved across prior market regimes, but it cannot guarantee that those relationships will persist unchanged. 

The prolonged post-Global Financial Crisis underperformance of value, or the breakdown of the traditional equity–bond correlation since 2022, are reminders that historical patterns can and do shift. Similarly, one holding a concentrated position in US equities could have been reassured by the multi-year evidence of US equities’ dominance. Yet, as 2025 demonstrated, these concentrated positions in a single equity market, often paired with a disproportionately large exposure in US dollar, can also be challenged. 

Risk premia exist, but they are not static; they vary through time and across macro regimes. Our view is that portfolios should reflect that variability. As such, in our dynamic portfolios we complement strategic allocation with measured, medium-term dynamic asset allocation, grounded in a repeatable framework rather than the instincts of a star manager. 

Our seven-factor assessment model is heavily weighted towards quantifiable indicators such as valuation, carry, momentum and sentiment and seeks to provide a disciplined lens through which to assess opportunities and risks when combined with the qualitative assessment of our dedicated economists and strategists. 

Stress tests

We recognise that any forecasting has its limits, so our ‘prepare don’t predict’ philosophy builds in safeguards to mitigate behavioural error as we stress-test portfolios to prepare them for a number of scenarios ahead.

We also deliberately focus active risk on areas where we believe it is most likely to add value: at the asset allocation level rather than solely through security selection as it is the asset allocation itself that we expect to drive the majority of risk over long-term. As market conditions evolve, so do our strategies. 

For a number of our multi-asset strategies, most underlying exposures are delivered via internal index building blocks or, where feasible, efficient, low-turnover securities baskets, keeping implementation costs low and preserving the compounding advantage of cost control. This allows us to focus our dynamic management on shaping overall portfolio risk and return outcomes – whether they are enhancing resilience, managing drawdowns, or positioning for ever-changing macro conditions. 

For our active building blocks, we lean on the evidence which shows the importance of their underlying factor exposure driving long-term risk and return. Hence, we carefully monitor and analyse that exposure when constructing portfolios with greater exposure to active funds. 

Exploiting opportunities

In short, we embrace the academically robust elements of evidence-based investing: diversification, risk premia, cost discipline and behavioural awareness. However, we do not believe in the inherent predictability that backward-looking analysis alone suggests. Regimes can change, correlations can shift, and that presents opportunities that can be exploited, or risks that cannot be anticipated. 

A disciplined degree of dynamism, grounded in evidence and process, gives us a broader toolkit to navigate that uncertainty. Ultimately, we think that blend of structural discipline and thoughtful adaptability is more likely to deliver resilient outcomes for clients over time, while maintaining on-going suitability.

 

The value of an investment and any income taken from it is not guaranteed and can go down as well as up, and the investor may get back less than the original amount invested. It should be noted that diversification is no guarantee against a loss in a declining market.