A Guide to Equity Index Construction (2nd Edition)
First published:
ISBN: 9781782724483
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Bespoke “custom-made” indices
Bespoke “custom-made” 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
“More and more, investors are moving to specialised benchmarks, and the number of firms considering benchmarks such as the S&P 500 as the only option is declining.”
—John Stannard, Former Co-Chair Russell Investments
This chapter digs deeper into the concept of bespoke or custom indices, shedding light on the manifold choices they offer. It builds on the method and insights from prior chapters.
Definition 15.1. Custom index A custom index is an index designed to meet bespoke criteria or requirements set by a particular investor, institution or financial entity. They are created to reflect a more specific investment strategy or theme.
Tailor-made benchmarks cater to investors seeking a precise alignment of their investments with specific financial objectives. Commercial index providers extend bespoke index creation services, with costs contingent on the complexity and scale of the index’s construction. This can include adjustments to existing indices or the inception of entirely novel ones.
Custom indices find favour among investors and academics for their capacity to closely align with specific investment goals and hypotheses. Three fundamental characteristics characterise
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