A Guide to Equity Index Construction (2nd Edition)
First published:
ISBN: 9781782724483
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Servicing and maintenance
Servicing and maintenance
Preface
Acknowledgements
Introduction
Which benchmark?
Modern portfolio theory and the benchmark index
Sampling and selection
Construction method
Making the index investable
Collection and processing of data
Servicing and maintenance
How to handle industries
How to handle countries and currencies
Factor indices and smart beta
Innovative indices
The commercial indices
Indexation and exchange-traded funds
Bespoke “custom-made” indices
Tying it all together
Appendix: The GICS methodology
Bibliography
Disclaimer
INTRODUCTION
“Turnover in indices and the frequency of re-constitutions are topics of hot debate amongst investment professionals.”
—Brad Pope, Former Managing Director, Blackrock iShares
This chapter turns to the servicing and maintenance of an index. This process plays a pivotal role in ensuring the accuracy and reliability of these financial guideposts, steering investors through the ever-changing landscapes of the market.
Definition 8.1. Maintenance Maintenance refers to the ongoing activities and processes involved in ensuring the accuracy, relevance and efficiency of an index over time. Maintaining an index is crucial to preserve its integrity as a reliable benchmark for tracking the performance of a specific market, sector or asset class.
Index servicing is a critical undertaking. It is the task of upholding the authenticity and usefulness of indices. To do it well, one needs to manage the intricacies of individual stocks and a perpetual stream of corporate actions.
In constructing investment indices, the process does not conclude once the index is constructed. It necessitates ongoing maintenance, which in turn impacts the overall efficiency of the index. This is because any
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