Dividend Index Funds And Smart Beta Strategy

Investors all around the world are finding new ways and devising new strategies to build a portfolio which outperforms the market.There are different types of investors in the market with different preferences who aim to achieve a different objective than the others. Thus, financial services are coming up with different investment plans and funds which can reflect the different investment segments. One such investment plan is Dividend Investing where the investors invest in Dividend Index Funds. These are for investors who are basically looking at their income growth and dividend index funds help these investors to invest in stock in portfolio of stocks which usually higher dividends than expected. In financial terms, they invest in companies with a higher dividend yield.

An investor’s goal is to make returns higher than the market’s. They are constantly looking for ways in which they can build a portfolio which is competent enough to beat the market. In their chase to earn higher returns, many fund managers have formulated a strategy known as the Smart Beta strategy which uses different index construction methods rather than the traditional equity index to build a portfolio. The funds are not managed actively but they take care of the volatility in the market so that it doesn’t affect the fund performance.

Such strategy has been proven to be less costly than most actively managed funds and like most other strategy aims at diversification to maximize returns with the least cost. There is no one way to form a Smart Beta strategy. This makes it more flexible. The fund managers in order to gain higher yields can spread the investment amount to various different avenues.

Truly, the financial world has grown tremendously. Each market is interlinked with another in such an intricate way, that whatever investment approach you choose, it will get affected by the world and domestic market movement. As an investor, you need to understand the risks and rewards before narrowing down to one strategy. Understand your own needs first and then the market. Lastly, invest smartly!

Source : http://thematicinvesti.livejournal.com/3030.html

What is thematic investing and how can it maximize your returns

Over the years, many innovations in investment and their strategies have floated around in the market. Each new strategy builds the way to successful investment by maximizing the returns. In any investment strategy, one thing to keep in mind is your smart work and understanding of market than the application of investment strategy itself. There are different approaches which aim at maximizing the total return indices. One such approach is Thematic Investing. When you are using this approach in investment, what you are doing is ideally is taking advantage of the future trends. Being a top-down approach, it helps the investors to gain exposure to the macroeconomic themes and trends through managed funds or baskets of related stocks. This type of investment can replicate some Equity Index or any Custom Index. Usually, it can be seen to replicate some form of Exchange Traded Funds. It recognizes that the world is changing rapidly and incorporates a deep understanding of the underlying drivers of long-term value creation and risk.

So the next question is, how can thematic investing maximize the portfolio’s returns?

Low Correlation

This approach to investing offers low correlation to the returns of traditional growth strategies and a negative correlation with the relative returns on traditional value strategies which can lead to diversification of portfolio for the investor. Diversification of portfolio can help the investor to maximize returns with minimum risk.

Alpha at scale

The alpha measures the performance of your fund against a specific benchmark index. Benchmarks usually capture the past successes. While thematic investing seeks to capture the future growth which helps the investors to earn market premium.

Hedge against Rapid Change

Since this investment approach focuses constantly on the secular changes and disruptive innovation, this method of investing can offer a portfolio hedge in a rapidly changing world and can complement the traditional index-based strategies.

One last thing to remember is although thematic investing comes with the potential of high returns, the risks are not to be ignored. Before using the approach, do our homework and constantly update your understanding of market. Market and economy can change rapidly with the structural changes and this can affect your returns. So, place your bets carefully and invest smartly!

What Are Index Funds And How Is It Better Than Most Actively Managed Funds

An index is a statistical measure of the changes in the value of list of stock prices which are considered to represent the whole market. An index will help you check the performance of country’s stock market and compare your portfolio’s market. However, these index figures don’t appear magically appear. There are various organizations that are involved in index services. These companies, not surprisingly, are known as index providers or index company. They are not only involved in index calculation but also index development and maintenance, making sure that they reflect any changes in the economy, market, and investor’s sentiments.

Now, that the basics of indices are covered. Let’s move on to the investment strategy that’s a result of index. The investors today are familiar with the term, Index Investing. In this, what you simply do is invest in something called, Index Funds. These funds can be thought of as mutual funds which are based on a specified index and you try to create a portfolio which mirrors the index’s performance.

Like Index funds, mutual funds are aimed to beat the performance of market by diversifying the investment. However, most of the mutual funds fail to outperform the market index. The main reason of mutual fund’s underperformance is the cost that mutual fund charges. Such actively managed funds tend to charge higher to investors in order to cover their own cost.

The main advantage of index funds is lower management fees. This helps in higher returns than most actively managed funds. Since, index funds follow the average, they spend very less. This is reflected in the total returns of your fund. The reason behind this lower cost is that the fund is not actively managed. The fund managers only need to maintain the appropriate weightings of the stocks in the selected index to match its performance.

Once you invest in index funds, you are guaranteed market average returns. However, do not be misled! There are risks as well. You’ll lose in a bear market and go up in bear market. The important thing to remember is do not sell in bear market, you might miss the return of recovery.

Source : http://thematicinvestings.page.tl/What-Are-Index-Funds-And-How-Is-It-Better-Than-Most-Actively-Managed-Funds.htm

How Important are the Stock Market Indices In The Financial Markets

Over the years, the importance of indices has grown in the financial sector. Be it the indices for bonds, commodities, or equity. It is now yardstick to measure how the financial markets are performing. Indices help an investor know which financial instrument are doing well and which are not. It has now become the most important measure to check whether their investment is doing well or going down the drain. These indices are calculated by companies known as Index Provider. They are not involved in the task of calculating these indices but also Index Maintenance to check and incorporate the daily changes of the market in the value of indices.

Coming back to importance of indices, one such segment where indices hold a great significance is the stock market. Although stock markets are more dynamic than what the indices suggest, along with the fact that there are different ways of index calculation, causing calculation bias, stock market indices are important to various investors in many different ways. First, it gives an historical perspective of the performance of the stock market which gives investors more insight on their investment decisions. If an investor is not sure about where to invest in individual stocks, indexing can help an investor decide. If the investors want to match the performance of the market, they can simply invest in index mutual funds or index exchange traded funds. This helps the investors to do as well as the market and their portfolio doesn’t underperform as well.

As mentioned before, indices can be a yardstick for investors. This can help the investors to compare the performance of their individual stock portfolios. Individual investors who have professional managers handling their portfolio can use indices to check how their portfolio is performing. Finally, the last way in which indices help is as a forecasting tool. By analyzing the historical trend of the indices, an investor can predict the future perform of the market and choose his investment route accordingly.

Sure, there are many ways to compare and measure the performance of your investment and stock market. However indices provide the first step in that path. So, as a smart investor, you don’t want to ignore them.

Source : https://thematicinvestings.wordpress.com/2017/01/11/how-important-are-the-stock-market-indices-in-the-financial-markets/