Index Investing

Index Investing - Articles & White Papers

This section lists research on index investing, but white papers on "smart beta", rather than plain vanilla indexing, have been the standout hot topic in this category. Smart beta strategies seek to identify "risk factors" which can generate excess return, and then seek to build factor models which tilt a portfolio away from the index in order to harvest alpha. With risk strictly controlled, portfolio managers will thereby seek to build a better beta; sometimes referred to as "fundamental beta" depending on the risk factors selected. Indeed, the selection of risk factors is a key consideration, and reports setting out a framework for assessing factors and implementing smart beta strategies, or providing new metrics for evaluating the efficiency of smart beta indices have proved very popular. Among the key proponents of smart beta, Research Affiliates has written a number of well-received papers, while Edhec have authored a number of technical papers, using the term "scientific beta". Northern Trust are one company who contend that, rather than a "buy and hold" approach to risk factors, different factors should be preferred at different times. Old school papers on index investing appear less frequently, but papers making the case for index-fund investing or comparing active versus passive strategies are still well-read. Indeed research from Towers Watson offers the perspective that there are too many active managers, and passive investment management should be more prevalent.
  • BlackRock

    BlackRock’s 2018 Guide to ETFs and Derivatives

    52% of institutions have replaced a derivative product with an ETF (see 1 below). Efficiency, precise exposures, improved flexibility and low cost are all features that have contributed to ETFs assuming a more prominent role alongside traditional derivatives. 

    The 2018 Guide to ETFs and Derivatives:

    • Addresses how breakthroughs in technology, ...

    • Professional
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  • Robeco

    Factor Investing: An Academic Source of Excess Returns (Savvy Investor, 2018)

    Authored by Savvy Investor and sponsored by Robeco, this 24-page special report is designed as a go-to resource for anyone interested in factor investing, covering a host of different factor investing issues in a short timespan.

    The report explains the academic underpinning to factor investing, and describes how a consensus has built around the belief that 4-6 key equity risk ...

    • Professional
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  • BlackRock

    Active Strategies, Indexing and the Rise of ETFs (Greenwich Associates / BlackRock, Oct 2017)

    Institutional flows into ETFs are expected to grow to $300B annually by 2020. Institutional Investors around the world are stepping up their use of ETFs as part of a broad transformation in portfolio management. Driving this growth is a wholesale reconsideration of the long-held distinction between active and indexed investment approaches.

    This paper presents the ...

    • Professional
    • Views: 2129
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  • Invesco (Europe)

    Invesco Global Factor Investing Study 2017

    Our factor investing study offers unique insights into the growth of factor investing via over 100 in-depth face-to-face interviews with consultants, pension funds, insurers, sovereign investors and private banks globally. We spoke with investors that were leading the way when it came to factor investing as well as non-users who were yet to adopt this investment approach.

    For ...

    • Professional
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  • MSCI

    Bridging the Gap: Adding Factors to Passive and Active Allocations (MSCI)

    • 04 May 2017
    • Company: MSCI

    Asset owners face a challenge in determining how the factor allocation fits into the overall equity program: How does the factor allocation relate to the existing roster of active managers? This paper uses a risk budgeting framework to investigate how active mandates and factor allocations can be combined. Risk budgeting connects the manager selection process with the factor ...

    • Professional
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  • CFA Institute

    Fundamentals of Efficient Factor Investing (Financial Analysts Journal, 2017)

    This paper appeared in CFA Institute's Financial Analysts Journal. Combining long-only-constrained factor subportfolios is generally not a mean–variance-efficient way to capture expected factor returns. For example, a combination of four fully invested factor subportfolios—low beta, small size, value, and momentum—captures less than half ...

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  • EDHEC-Risk Institute

    Academic Lessons on Factor Investing (EDHEC, 2016)

    This paper analyses what academic research has to say on equity factors. Our objective is to understand which lessons we can learn from such research in terms of designing and evaluating factor indices. When analysing academic publications on equity factor investing, five important lessons emerge, which provide useful perspective on practical questions about factor indices. This ...

  • EDHEC-Risk Institute

    Robustness of Smart Beta Strategies (EDHEC)

    This EDHEC paper examines the importance of robustness for smart beta strategies, explaining how a strategy being "relatively robust" differs from "absolute robustness". The authors describe how the robustness of smart beta performance can be assessed and quantified, describing various approaches, which may be used to improve the robustness of smart beta ...

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  • Research Affiliates

    A Framework for Assessing Factors and Implementing Smart Beta Strategies (2015)

    Published in the Journal of Index Investing, this article argues that the academic literature is littered with a "zoo" of apparently smart risk factors, which in practice will go unrewarded, being the result of spurious and unwarranted data-mining, The authors suggest a methodology whereby robust, investable, risk factors can be identified, which make intuitive sense and ...

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  • FTSE Russell

    Incorporating diversity into passive investments (FTSE Russell, 2018)

    Growing evidence of the positive economic benefits of increasing women’s participation in the workforce, along with new public and private initiatives to promote representation of women on corporate boards, is helping to fuel suggestions that allocating assets to companies with diverse leadership could have positive corporate performance outcomes. This article from FTSE ...

  • Credit Suisse

    Looking for Easy Games: How Passive Investing Shapes Active Management (Credit Suisse, 2017)

    Investors are shifting their investment allocations from active to passive management. This trend has accelerated in recent years. The investors who are shifting from active to passive are less informed than those who stay. This is equivalent to the weak players leaving the poker table. Since the winners need losers, this can make the market even more efficient, and hence less ...

  • FTSE Russell

    Smart beta: 2017 global survey findings from asset owners (FTSE Russell, 2017)

    Now in its fourth year, FTSE Russell’s comprehensive survey of global asset owners focuses on key themes behind the adoption, evaluation and implementation of smart beta. Find out the primary motivations of asset owners from across all asset tiers and regions, and get insight into how they perceive and participate in growing trends such as smart sustainability and ...

    • Professional
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  • S&P Dow Jones Indices

    The Carbon Scorecard (S&P Dow Jones Indices)

    There is a recommendation from the Financial Stability Board that asset managers now report on the carbon exposure in their portfolios to manage climate-related risks. This report assesses the carbon risks and opportunities of major global equity indices. A range of metrics reveals the carbon footprint of each index, alongside exposure to fossil fuels, stranded assets, and ...

  • Legal & General Investment Management

    The Rise of Factor-Based Investing (LGIM)

    Factor-based investing, which seeks to identify the underlying characteristics that drive performance, has grown rapidly since the financial crisis. This is because investors are looking to go beyond asset class labels and understand the true drivers of risk and return in their portfolios.