Impact on Indices: The Trends in Industry that Affect Indices

Indexing has changed the way of investment management. It is an investment approach which matches your investment to the returns of a basket of stocks, bonds or a market index. While indexing, the fund manager will try to replicate a target index in the form of a portfolio of small securities. It is derived from the theory that markets operate efficiently but it is still impossible to completely replicate a larger index. Index Development has grown in the last few years with many indices introduced to track the market. These indices are developed and framed after a careful evaluation of the market by an index company. These indices are now thus being used as a benchmark of many investment strategies like Indexing mentioned above. But, what the factors which influence these indices-

• Growth of Smart Beta Indices – There is a lot of debate on how Smart Beta index is defined. However, a common notion is that the funds linked to these indices will continue to grow. They give an inexpensive strategies and asset classes which were earlier inaccessible to private investors. Smart Beta Indices follow strategies which aim to generate alpha, a quantity which measures a performance of a portfolio, and can be wrapped in funds, ETFs, and other structured products.
• ETF Issuers changing how they operate – ETF issuers are now relying more on their own brand and ability to collect different asset classes and relying less on the brand of index provider. This has now opened more opportunities for index companies to compete with innovation, greater technology, and breadth of data.
• Regulation Development – Regulation is a major part of the financial world and will continue to evolve and broaden. Index and other Benchmark providers have an expertise in these regulations and governance which ensures objective and independent administration of index related products. Thus, this expertise can be leveraged across other products affected by legislation.

There are various other factors which affect indices and thus shapes are indexing investment strategies. Therefore, one should have a careful evaluation of these factors and one’s investment objectives to gain maximum benefits. Happy Investing!

Source : http://thematicinvestings7.webnode.com/impact-on-indices-the-trends-in-industry-that-affect-indices/

Know all about Thematic Investing Strengths and Its Risks

Over the few years, many financial innovations and inventions have taken place. Many new forms and variations of investments have been introduced to maximize investor’s return. In the recent years, thematic investing is one such form of investment.

Thematic investing is the approach which takes advantage of the future trends. It is a top-down investment approach which helps the investors to gain exposure to the macroeconomic themes and trends through managed funds or baskets of related stocks. These baskets of stocks can be selected to represent any particular Equity index or can be in the form of exchange traded funds. The company can even take the benefit of index services to frame the most yielding thematic investment for their clients.

One of the challenges faced by thematic investment is identifying and capitalizing on themes successfully. Thus, not all investments will give you the best results. Thus, in thematic investment, the selection should be a basket of stocks rather than individual stocks. For this, they need to choose a trend or theme that aligns with their investment values. Once the theme is decided, investor should then trace them to a particular sector or region. These investments are selected based on companies which will benefit from long term structural trends.

The key benefit of thematic investment is to generate an alpha at scale where an alpha is a measure of fund’s performance against a specified index. If alpha is positive 1 then the portfolio has outperformed the benchmark by 1% and a negative alpha indicates the opposite case. However, there are risks as well. Many are tempted by the increasing returns, but there are many companies part of the portfolio which are falling. Thus, if the investor moves to defensive position, investors are then trading on speculation. Thus to avoid investing in a fad, themes should be chosen according to their earnings potential, and whether the company is liquid.

Thematic investment is an alternative approach to traditional investments. However, before doing what the crowd is doing, it is important to understand the technicalities, strengths, and risks in order to get the best results. Thus, do your homework and keep investing!

Source : http://thematicinvestings.jimdo.com/2016/11/18/know-all-about-thematic-investing-strengths-and-its-risks/