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Description
Financial science and our understanding of what drives asset prices have evolved considerably. The implications on the financial services industry have also been significant, including the introduction of passive index funds, single-factor and multi-factor strategies. Recent studies have highlighted that the rise in indexing has been driven by asset class segment, or non-total market index funds. While index-based strategies offer transparency in exposures, any non-total market index involves active decision making in both design and ongoing execution. During this session we will: Examine some of the similarities and differences in how indices define asset classes and manage reconstitution; Contemplate whether factor-building has been overdone, and examine the risks of becoming too factor focused; Highlight some of the constraints these decisions can place on index trackers; and -Propose how a systematic approach can deliver benefits commonly associated with indexing while removing artificial constraints.
Learning Objectives
1. Advisors will get an in-depth look at the data behind various indexes to better understand the tracking error between indexes targeting the same asset class, as well as the overlap between indexes targeting different asset classes.
2. Advisors should have a better understanding of the similarities/differences of popular indexes by the end of the presentation. This talk also explores the evolutions in academic research around targeting higher expected returns, and how advisors might implement those approaches for their clients.