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Strategic Asset Allocation: Indexes and Benchmarks

Fundamental Questions in Indexing and Strategic Asset Allocation

Indexes serve a multitude of purposes within the investment management industry - whether for formulating benchmarks, setting asset allocation guidelines, investing passively, or trading in products that derive their value from an underlying index.

But how should you employ them? From 'best practices' and 'how-to guides' through to strategic allocation decisions that might arise, we've put together a list of papers that could prove helpful. As always, the choice is yours.

Savvy Investor

Making a better benchmark: A practical guide to effective market representation (FTSE Russell, 2017)
Given their utility in a variety of fields, FTSE Russell examines the core principles inherent in the design and construction of benchmarks.

Policy Benchmarking: A Guide to Best Practices (Cambridge Associates, 2017)
The authors of this report argue that despite the diverse nature of modern portfolio construction, policy benchmarking is a critical component of building and managing a successful investment program.

Indexes and Benchmarks Made Clear (FTSE Russell, 2017)
This guide introduces the various purposes indexes can serve and shares some important attributes that investors should consider when selecting an index. 

Vanguard's guide to Core-Satellite investing, 2017
The core-satellite concept is a portfolio philosophy that combines the best of portfolio theory and a real-world market-tested approach.

Preparing for China's inclusion in global benchmarks (FTSE Russell, Nov 2017)
It is likely that within two to three years China A-shares will become eligible for inclusion in FTSE Russell's global indexes. Specific transitional indexes will pave the way for investors transitioning towards Chinese inclusion.

Active Strategies, Indexing and the Rise of ETFs (Greenwich Associates / BlackRock, Oct 2017)
(For compliance reasons, this paper is only accessible in the USA)
Flows of institutional funds into ETFs are expected to grow to $300B annually by 2020. This paper presents the results of the industry's most comprehensive study to date of the global institutional market for exchange-traded funds.

Embrace passive management already - advice from Eugene Fama (Chicago Booth Review, Nov 2017)
Eugene Fama discusses market efficiency, corporate governance, and active management, among other topics, and explains why investors shouldn’t buy hedge funds.

Looking Beyond Traditional Benchmarks to Add Value in Emerging Markets (S&P Dow Jones Indices, July 2017)
The increasing amount of liquidity and diversity within emerging equity markets have made developed-market portfolio strategies (such as regional and size-based tactical allocations) much more accessible to EM investors.

The Rise of Alternatives and Long-Term Investing: Strategic Asset Allocation for Large Institutional Investors (BCG)
This report by The Boston Consulting Group provides guidance for large institutional investors on strategic asset allocation to alternative assets and thinking long-term.

A deeper view of credit: The case for a strategic allocation (BlackRock, 2017)
Investors have traditionally found credit exposure via core fixed income portfolios and tactical add-ons. In this paper, the authors argue for a more strategic approach.

Five-Year Capital Market Outlook (Willis Towers Watson, 2017)
This paper by Willis Towers Watson takes a detailed look at the capital market outlook for the next 5 years. It discusses risk management, portfolio construction, implementation and monitoring, and more.

Five-Year Expected Returns 2018-2022: Coming of Age (Robeco)
Robeco presents its forecasts of 5-year expected returns for all major asset classes, including special topics on secular stagnation, the origin of returns, volatility, and passification.

A framework for institutional portfolio construction (Vanguard)
The suitability of the approaches of static tilts, active management, market-cap exposures, and alternatives, for achieving the goals of absolute return, LDI, total return, or principal protection are examined for institutional investors.

An index isn't a fiduciary - and six other concerns about the push for passive (Wellington Management, Sept 2017)
Both active management and passive investing may have a meaningful role to play in investors' portfolios.  The author lists seven concerns that astute investors must address when considering how best to achieve investment objectives.

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