A Guide to Equity Index Construction (2nd Edition)
First published:
ISBN: 9781782724483
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The commercial indices
The commercial indices
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
“We think the big products have been created a long time ago. You need a total US market index, a total international index, a total bond index and a money market fund. And that’s it. Those are the formulas that have been making money for people for decades, and we think they will still be making money for people two decades from now. Fads come and go, but not that many people make money from them.”
—Gus Sauter, Chief Investment Officer, Vanguard
This chapter introduces the main players that construct these indices but, in view of the sheer number, is by no means exhaustive. Although theory suggests that we need only one market proxy, in reality there are thousands for investors to choose from. The equity-investment universe after all is very broad, and as a result the commercial indices that cover them are also broad and numerous.
The main commercial index providers are FTSE Russell, S&P Dow Jones Indices, MSCI, Nasdaq, STOXX, Bloomberg, Alerian, Intercontinental Exchange, Solactive, Morningstar, CRSP and SIX. Between them, the key players construct more than 250,000 indices. Investors are spoilt for choice with all the various indices, and in many instances may be
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