The Ultimate Guide to Custom Indexing
Learn everything you need to know about how to build a custom index,
and provide a differentiated service to your clients by managing specific investment needs.
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Your all-in-one custom indexing solution.
Create a custom index or enhance your current indexing workflows with Index One’s comprehensive backtesting, maintenance, dissemination and reporting solution.
What is custom indexing?
Custom indexing- also known as personalized or direct indexing- is the process of building a tailored investment portfolio that mirrors a market index while aligning with an investor’s unique goals, values, and constraints.
Unlike traditional index investing through mutual funds or ETFs which provide broad, one-size-fits-all exposure, custom indexing allows for the inclusion or exclusion of specific stocks based on personal preferences, risk tolerance, or financial objectives through indexed based investing.
In a world where personalization is expected across all aspects of life, investors are seeking the same in their portfolios.
Custom indexing enables individuals to take control by selecting securities that reflect their priorities-such as sustainability, sector exclusions, or tax efficiency- while maintaining diversified exposure.
Through custom index calculation, a portfolio is built to meet an investor’s criteria and performance targets.
The market for this approach is rapidly growing, with direct indexing assets projected to exceed $800 billion by 2026. For financial advisors, custom indexing offers a powerful way to deliver differentiated, high-touch service.
Custom indexing empowers investors to move beyond pre-packaged solutions and construct portfolios that reflect their financial goals and personal values.
What is Direct Indexing?
Direct indexing is an indexed based investing approach where investors replicate the performance of a benchmark index by directly purchasing its individual securities in the same weightings.
Custom indexing vs Direct indexing
While the terms "custom indexing" and "direct indexing" are often used interchangeably, direct indexing typically focuses on mirroring an existing index, whereas custom indexing involves creating a unique index tailored to specific goals or constraints.
Direct Indexing for Advisors
For financial advisors, direct indexing is a powerful tool to deliver personalized, tax-efficient portfolios. It enables greater control, flexibility, and cost efficiency- while supporting client education and deepening relationships. Advances in direct indexing technology now make it easier than ever to offer customized index strategies at scale.
Direct Indexing Software
Index One offers a comprehensive direct indexing platform that supports a wide range of use cases across the financial industry.
Explore our Index Builder to see how you can turn your strategy into a live, customized index.
Who uses custom indexing?
Custom indexing is increasingly adopted across the financial industry by professionals such as investment managers, hedge funds, pension funds, and individual investors.
Investment managers may use custom indexing to target specific sectors or themes, like healthcare or emerging markets. Hedge funds often create custom indexes to reflect proprietary strategies, while pension fund managers use them to track distinct asset classes or styles, such as value or growth investing.
The rise of ETFs and passive vehicles has also empowered individual investors to build personalized portfolios aligned with their specific goals.
As a relatively new and fast-evolving technology, custom indexing is gaining traction among financial advisors, wealth managers, and analysts seeking to deliver tailored solutions, enhance tax efficiency, and differentiate their service.
Platforms like Index One make custom indexing accessible and flexible, helping firms and individuals construct portfolios that reflect their values, strategies, and objectives.
Why is custom indexing popular?
By 2025, most financial advisors will use web-based software to create and manage Custom Indexes for their clients.” (via OSAM)
Custom indexing is a powerful and increasingly essential tool in modern finance, used by professionals and institutions to track specific market segments, align portfolios with investment goals, and manage risk more effectively.
As a technology-driven solution, custom indexing offers greater personalization, flexibility, and automation- enabling advisors and investors to focus more on strategy while benefiting from cost efficiency.
With growing demand for tailored solutions, platforms like Index One provide comprehensive, low-cost custom index construction and calculation services to support a wide range of financial use cases.
What are the benefits of custom indexing?
Custom indexing empowers investors to align their portfolios with specific objectives, offering greater control over portfolio construction, tax efficiency, and personalized investment outcomes.
Unlike traditional index funds, custom indexing allows for tailored exposure to sectors, asset classes, or themes-such as dividend income or growth-focused technology- based on individual risk tolerance and goals.
Personalized Portfolio Construction:
Tailor portfolios to reflect individual investment goals, risk tolerance, values, and constraints.
Tax-Loss Harvesting Optimization:
Capture losses at the individual security level to offset gains and enhance after-tax returns (potential 0.5%–1.0% added annually¹).
Greater Allocation Flexibility:
Customize exposures across sectors, regions, sizes, or factors within a single portfolio.
Direct Ownership of Securities:
Enables precise control, transparency, and customization unavailable in ETFs or mutual funds.
Concentrated Risk Management:
Underweight or exclude high-risk positions to reduce portfolio concentration and volatility.
ESG and SRI Customization:
Include or exclude securities based on environmental, social, and governance (ESG) or socially responsible investing (SRI) criteria.
Cost Efficiency & Automation:
Benefit from lower management fees and automated rebalancing via tech-enabled platforms.
Differentiated Advisory Service:
Advisors can offer bespoke investment strategies, strengthening client relationships and value-add.
Custom Indexing Solutions
Custom indexing solutions refer to end-to-end services that build, calculate, and maintain bespoke indices for asset managers, advisors, and institutions. Index One offers a comprehensive custom index calculation platform that enables flexible portfolio construction, tax-loss harvesting integration, and scalable implementation.
Types of Custom Indices
Selecting the right asset classes is essential when constructing a custom index, as it directly influences risk, returns, and overall strategy. Custom indices can be built using a variety of asset types, each tailored to meet specific investment objectives:
Equities:
Equity indices encompass stocks from various market capitalizations, such as large-cap, mid-cap, and small-cap. These indices can be focused on specific sectors or provide broad market exposure. Additionally, custom equity indices can be based on factor strategies like value, growth, or momentum to target particular investment themes.
Example: Mulvihill Index One Split Preferred Share Index
This index tracks the performance of an equally weighted portfolio composed of Canadian Split Corp. Preferred Share instruments.
Fixed Income:
Fixed income indices include government, corporate, municipal bonds, and emerging market debt. They can be tailored based on factors like credit ratings, maturity, or interest rate sensitivity. Custom fixed income indices are ideal for investors seeking income generation while managing risk.
Example: BX ARAM Plus Alpha Fixed Income
This systematic, actively managed portfolio of fixed income ETFs aims to outperform traditional fixed income benchmarks and generate alpha.
Commodities:
Commodity indices track raw materials like oil, gold, agricultural products, and industrial metals. These can be designed using futures-based or spot price indices to reflect the performance of the underlying commodities.
Multi-Asset:
Multi-asset indices combine a mix of asset classes such as equities, bonds, commodities, and alternative investments. These indices are designed for balanced strategies, offering diversified exposure to multiple markets and asset types.
Example : i1 60/40 Exposure Index
This index blends the i1 World Exposure Index with the i1 Bonds Exposure Index, providing a diversified 60/40 allocation across global equities and bonds.
Custom Indexing for Financial Advisors
What Does an Investment Advisor Do?
An investment advisor (or financial advisor) is an independent individual or firm that provides financial analysis and investment recommendations for a fee, while upholding fiduciary responsibility.
Common Issues Faced by Investment Advisors
Being an investment advisor involves more than just managing portfolios- it includes financial planning, client relations, compliance, and business development. Some common challenges include:
Managing Client Expectations:
Clients have varied goals, risk profiles, and biases. Advisors must tailor their strategies accordingly Custom indexing supports this by enabling advisors to align portfolios with client-specific values, preferences, and financial goals- offering a more personalized and differentiated service.
Providing Transparency:
Clients demand transparency in how their investments are managed and measured.
Modern custom indexing tools allow advisors to show detailed methodology and both actual and hypothetical index performance, enhancing trust and clarity.
Reducing Costs and Staying Competitive:
Advisors seek to minimize operational costs while delivering high-value service.
Low-cost self indexing platforms empower advisors to scale efficiently, automate portfolio construction, and remain competitive in a crowded marketplace.
Case study: MoveUp Financial
Custom indexing allowed MoveUp Financial to solve those problems and build a personalized index based on their bespoke investment strategies, allowing the independent investment advisor to effectively track an index, resulting in higher accuracy and higher cost efficiency.
Custom Indexing for Asset Managers
What Does an Asset Manager Do?
Asset management involves growing a client’s wealth by acquiring, maintaining, and trading investments that increase in value over time.
Asset managers are responsible for constructing and managing portfolios that align with a client’s goals-across public equities, bonds, or alternative investments.
Common Issues Faced by Asset Managers
Evolving Client Demands:
Asset managers are under pressure to deliver a more personalized, value-driven experience while navigating volatile markets.
Custom indexing tools help meet these demands by enabling personalized portfolio construction and enhancing client trust through transparency and flexibility.
Clear Value Propositions:
To stay competitive, asset managers must clearly articulate their value. However, doing so requires advanced yet affordable technology. Custom indexing platforms provide operational efficiency and cost-effectiveness, allowing managers to demonstrate value through smarter, more transparent strategies.
ESG & Impact Integration:
There is rising demand for ESG and impact-aligned portfolios. Investors want transparency and authenticity- not greenwashing.
Asset manager index solutions
Custom indexing solutions let asset managers build bespoke ESG portfolios that align with individual investor values, supporting credible and scalable impact investing.
Custom Indexing for Portfolio Managers
What Does a Portfolio Manager Do?
A portfolio manager oversees investment strategies within funds like mutual funds, ETFs, or separately managed accounts. They handle asset allocation, trading, and daily portfolio decisions- whether through active strategies that aim to beat the market or passive strategies that track a benchmark.
Common Issues Faced by Portfolio Managers
Automation:
Managing multiple portfolios manually is inefficient. Custom indexing platforms automate portfolio construction, rebalancing, and performance tracking-allowing managers to focus on strategy and personalization.
Rebalancing Challenges:
Index front-running causes significant portfolio drag, costing investors billions annually
Custom indexing allows for optimized, flexible rebalancing schedules, minimizing index-related inefficiencies.
Reporting & Integration:
Fragmented data across systems limits effective oversight. Custom indexing tools offer real-time performance tracking, clear index methodologies, and detailed constituent-level data- streamlining reporting and enhancing decision-making.
Case Study: FACTS® 200 Index
Index One supported Trust Across America–Trust Around the World (TAA-TAW) in automating the backtesting and live calculation of the TRUST Index, which tracks high-performing, trustworthy public companies. This bespoke index now supports marketing, whitepapers, and potential ETF/UCITS product development- at a fraction of traditional indexing costs, thanks to Index One’s low-cost platform.
Building an Index Fund Portfolio
Constructing an index fund portfolio involves selecting funds that align with your investment objectives and risk tolerance. It requires ongoing rebalancing and performance review.
Index One helps investors and professionals build and maintain diversified, rules-based portfolios with ease.
Personalization in Portfolio Construction
Personalized portfolio construction tailors investments to an investor’s goals, preferences, and constraints.
With Index One’s index based portfolio platform, portfolio managers can build fully customized strategies that reflect each client’s financial objectives, values, and tax considerations.
Custom Indexing for Equity Research Firms
What Does an Equity Research Analyst Do?
A portfolio manager oversees investment strategies within funds like mutual funds, ETFs, or separately managed accounts. They handle asset allocation, trading, and daily portfolio decisions- whether through active strategies that aim to beat the market or passive strategies that track a benchmark.
Challenges Faced by Equity Research Analysts
Unique Insights:
Analysts are often required to cover hundreds of stocks and generate distinct insights, yet outdated technology and manual processes can hinder this.
Custom indexing allows analysts to backtest, optimize, and refine stock-picking strategies quickly, allowing them to focus on providing unique, data-driven insights and personalized advice.
Conflicts of Interest:
To maintain credibility and trust, analysts prefer third-party calculation agents to ensure unbiased performance evaluation.
Many custom indexing platforms serve as third-party calculation agents, enhancing transparency and promoting trust among clients.
Failure to Beat Benchmarks:
To outperform benchmarks, analysts need access to advanced tools for comprehensive analysis of strategies.
Custom indexing tools offer real-time, up-to-date data, enabling analysts to effectively analyze performance against benchmarks and make accurate, objective investment decisions.
Case study: ValuEngine
ValuEngine used Index One’s custom indexing tool to create a series of indices weighted by their equity ratings, enhancing transparency and performance tracking.
Custom Indexing for ETF issuers
What Does an ETF Issuer Do?
An ETF issuer is responsible for creating, managing, and distributing Exchange-Traded Funds (ETFs). Their duties include fund creation, regulatory compliance, risk management, and ensuring transparency for investors.
Challenges Faced by ETF Issuers
Regulatory Compliance:
Issuers must navigate strict regulations and ensure disclosure requirements are met.
Third-party index calculation agents like Index One can verify the accuracy of underlying index data, supporting compliance and transparency
Index Tracking Error:
Differences in index performance and actual ETF returns can result from factors like transaction costs and timing.
Custom index construction minimizes tracking errors by incorporating factors like liquidity, weighting methods, and rebalancing.
Product Innovation:
Staying competitive requires continuous development of new investment strategies.
Index One offers tailored index solutions, helping ETF issuers create innovative products that align with investor demands.
Custom Indexing for ESG Data Providers
What Does an ESG Data Provider Do?
An ESG (Environmental, Social, Governance) data provider offers comprehensive data and analysis on ESG-related factors, helping investors make sustainable and socially responsible investment decisions.
Challenges Faced by ESG Data Providers
Standardization and Comparability:
Inconsistent ESG metrics make it challenging to compare companies across industries.
Index providers can help standardize ESG data by developing consistent frameworks and methodologies for ESG analysis.
Data Interpretation and Materiality:
Extracting actionable insights from ESG data is often complex.
Collaborations with index providers can help ESG data providers enhance their analysis, leading to more robust ESG indices.
Scalability and Coverage:
Expanding data coverage while maintaining quality can be resource-intensive.
Custom indexing tools allow ESG data providers to scale their operations and create more comprehensive indices.
Custom Indexing for Structured Products Provider
What Does a Structured Products Provider Do?
A structured products provider creates and distributes complex investment instruments, combining traditional assets like stocks or bonds with tailored strategies or features.
Challenges Faced by Structured Products Providers
Investor Confidence and Trust:
Negative events or product failures can damage credibility.
Custom indexing ensures reliable and transparent pricing data for underlying assets, helping establish investor trust.
Complexity and Understanding:
The intricate nature of structured products can make them difficult for investors to comprehend.
Index providers assist in educating investors by offering clear, detailed resources about the indices underlying structured products
Custom Indexing for Hedge Funds
What Does a Hedge Fund Do?
Hedge funds pool capital from investors and employ high-risk strategies to generate substantial returns, typically through professional fund managers.
Challenges Faced by Hedge Funds
Performance Volatility:
High-risk strategies can lead to performance fluctuations.
Solution:
Custom index tools help hedge funds measure and report performance accurately, using widely accepted methodologies.
Market Competition:
The competitive nature of hedge funds requires unique strategies and differentiation.
Solution:
Customized indices can be tailored to niche strategies, giving hedge funds a competitive edge.
Risk Management:
Complex strategies heighten risk exposure
Index data and insights from index providers help hedge funds refine their strategies and better manage risks.
Case study: Brompton Funds SPLT ETF
Brompton Funds needed a third-party index calculation agent to develop a benchmark for their SPLT ETF, which required high accuracy and flexibility in backtesting and index creation. The challenge stemmed from the lack of existing benchmarks tracking Split Corp. Preferred Shares.
Index One provided Brompton Funds with an independently calculated benchmark, the Index One Split Preferred Share Index, which tracks the performance of the Canadian Split Corp. preferred share market.
Custom Indexing for Robo Advisor
What Does a Robo Advisor Do?
A robo advisor provides algorithm-driven financial advice and portfolio management services at a lower cost than traditional advisors.
Challenges Faced by Robo Advisors
Limited Customization:
Standardized portfolios may not meet all clients' unique investment preferences.
Custom indexing offers a wide variety of indices, allowing robo advisors to construct more personalized investment portfolios.
Lack of Flexibility:
Robo advisors typically offer static investment strategies
Robo advisors can leverage bespoke indices to create dynamic portfolios and adjust strategies as market conditions change.
Limited Financial Planning Scope:
Robo advisors generally focus only on investment management, not broader financial planning.
Custom indexing tools help assess risk characteristics and enhance investment decisions.
Custom Indexing for Financial Media Organization
What Does a Financial Media Organization Do?
Financial media organizations provide news, analysis, and insights about financial markets to inform investors, businesses, and the public.
Challenges Faced by Financial Media Organizations
Limited Customization:
Pre-determined portfolios may not suit all clients’ preferences.
Custom indexing allows financial media organizations to create tailored content, including specific indices that align with audience interests.
Monetization and Revenue Generation:
Generating consistent revenue can be challenging.
Index providers can collaborate with media organizations to create unique indices and attract new revenue streams.
Audience Engagement and Retention:
Capturing and maintaining audience interest is vital.
Custom indices, updated with real-time data provide engaging content that keeps audiences informed and invested.
Index Backtesting
What is Index Backtesting?
Backtesting is the process of testing an investment strategy using historical data to assess its effectiveness before actual implementation.
How to Backtest an Index?
Using tools like Index One, analysts can backtest strategies by:
Step 1: Navigating to "Index Builder"
Step 2: Adding filters or uploading a universe of assets
Step 3: Selecting filters and creating a backtest
Step 4: Launching the new index
Custom index calculation
What is Custom Index Calculation?
Custom index calculation involves constructing indices based on tailored strategies, asset allocations, or client preferences.
How to Build a Custom Index?
With tools like Index One, advisors can create real-time indices that fit clients' specific needs by:
Step 1: Clicking on "Index Builder"
Step 2: Using custom universes or codes
Step 3: Testing and launching the index
Index Benchmarking
What is Index Benchmarking?
A benchmark index serves as a standard to measure the performance of an investment strategy. It is essential to choose or create the right benchmark to ensure accuracy.
How to Build a Benchmark Index?
Using custom indexing tools, you can:
Step 1: Navigate to "Index Builder"
Step 2: Select filters and create a backtest
Step 3: View your new benchmark index
Index Rebalancing
What is Index Rebalancing?
Index rebalancing involves adjusting the weightings of assets in an index to maintain a desired asset allocation, reducing risk exposure.
How to Rebalance an Index?
Custom indexing tools allow you to configure index rebalancing strategies based on your preferences, ensuring timely and accurate adjustments.
Index rebalance strategy:
Index rebalancing strategies refer to the approach used to adjust the composition and weights of securities within an index during the rebalancing process.
Rebalance your strategy here.Equity Research Ratings
What are Equity Research Ratings?
Equity research ratings are part of reports produced by analysts, which offer recommendations based on company performance, market data, and news reports.
Embed index data
What is Displaying an Index on Your Website?
Embedding index data on your website allows you to showcase investment strategies, benchmark comparisons, and real-time performance data.
How to Display an Index on Your Website?
With tools like Index One, you can easily embed index data in three simple steps:
Step 1: Choose an index
Step 2: Click “Share”
Step 3: Copy and paste the code into your website
Frequently Asked Questions
What is index construction?
What is index construction?
Index construction refers to the process of creating and maintaining a market index, which is a hypothetical portfolio of securities that represents a specific segment of the overall market.
What is the difference between custom indexing vs direct indexing?
What is the difference between custom indexing vs direct indexing?
While direct indexing requires you to choose amongst pre-packaged solutions, custom indexing allows for unlimited customization within different factors, allowing investors to build a portfolio that truly reflects their unique investment goals and preferences.
What is the difference between active investing vs passive investing?
What is the difference between active investing vs passive investing?
While active investing strategies focus on individual securities and a more hands-on approach, passive investing strategies tend to focus on purchasing shares of index funds or ETFs in an attempt to mirror or beat the performance of market indexes.
What is the difference between securities vs stocks?
What is the difference between securities vs stocks?
A security is the ownership or debt with value. A stock is a type of security that gives the holder of the stock ownership or equity of the publicly-traded company.
A share is a unit of ownership measured by the number of shares you own, whereas a stock is a unit of equity, measured by the percentage of ownership of the company.
What is the difference between portfolio manager vs asset manager?
What is the difference between portfolio manager vs asset manager?
A portfolio manager handles investments and other financial products that make up a portfolio. An asset manager may also manage portfolios, but they mainly handle cash and assets, which a portfolio manager does not.
What is the difference between Index vs Benchmark?
What is the difference between Index vs Benchmark?
While a benchmark only serves as a standard to measure index performance against, an index is created for a variety of reasons, and one of its purposes is to act as a benchmark. In other words, a benchmark is usually always an index, but an index doesn’t necessarily have to be a benchmark.
What is the difference between reconstitution vs rebalancing?
What is the difference between reconstitution vs rebalancing?
Rebalancing is a more automated process where price and market-cap weighted indices are rebalanced automatically. Reconstitution, on the other hand, requires the manual adding and removal of securities from an index, based on whether or not these securities are meeting index criteria.
What is the difference between an index fund vs ETF
What is the difference between an index fund vs ETF
An index fund is a mutual fund which tracks an index, while an ETF is an exchange traded asset tracking the performance of an index.
Can you invest directly in an index?
Can you invest directly in an index?
An index is a hypothetical basket of stocks. In order to invest in an index, it would need to be an investable product that tracks an index. A few examples of an investable product are mutual funds and ETFs.
How does index rebalancing work?
How does index rebalancing work?
Index rebalancing refers to the process of adjusting the composition and weights of securities within an index. It is typically done periodically to maintain the index's target representation and desired characteristics. Index rebalancing helps maintain the integrity of the index and ensures that it continues to accurately reflect the targeted market segment. It allows for adjustments to account for changes in market conditions, company fundamentals, and other factors that may affect the composition and weights of the index components.
How to create a stock index?
How to create a stock index?
Creating a stock index involves several steps and considerations, including defining the index objective, selecting the index components, determining the weighting methodology, setting the initial index values, establishing the index calculation methodology, regular maintenance and rebalancing, index calculation and dissemination and index governance and oversight.
How to construct an index for research?
How to construct an index for research?
Constructing an index for research purposes involves a tailored approach to meet specific research objectives. This includes defining research objectives, selecting the relevant securities, determining inclusion and exclusion criteria, determining weighting methodology, setting the index universe, establishing index calculation methodology, data collection and management, performing backtesting and validation, documenting index construction methodology and analyzing and interpreting results.
How to create your own index?
How to create your own index?
Creating your own index requires careful consideration of various factors, including your investment objectives, the availability of data, and the resources needed to maintain and calculate the index. It may be beneficial to seek professional advice or consult with experts in index construction to ensure the integrity and accuracy of your self-created index.
How to make your own index fund?
How to make your own index fund?
Creating your own index fund involves several steps and considerations: define the investment objective, select the index components, determine the weighting methodology, set the initial fund composition, establish a rebalancing strategy, implement the fund's portfolio, track and monitor performance, consider legal and regulatory requirements, consider administration and custody, develop a distribution strategy, and comply with reporting and governance.
Commonly Used Terms
Custom indexing
Custom indexing
custom indexing is the process of setting specific parameters on the stocks you’d like to invest money in, allowing you to personalize your investments based on your individual values, goals, preferences, risk tolerance and tax positioning.
Direct indexing
Direct indexing
direct indexing is an investing strategy that involves purchasing the individual stocks within an index, maintaining the same weights in the index.
Active management
Active management
active management involves an investment manager making investment decisions by tracking the performance of an investment portfolio.
Passive management
Passive management
passive management involves a fund’s portfolio mirroring a market index, by selecting stocks to be included in a portfolio, unlike active management.
Market index
Market index
A market index is a hypothetical portfolio that contains investment holdings. The value of a market index is based on the prices of the underlying holdings.
Efficient market hypothesis
Efficient market hypothesis
EHM, or efficient market hypothesis is a theory coined by Eugene Farma, which states that active managers can beat the market only for a given period of time, as their success is simply a matter of chance. EHM suggests that long-term passive management delivers better results than asset management.
Active investing
Active investing
active investing involves the ongoing buying and selling of securities by monitoring market index.
Passive investing
Passive investing
passive investing is a long-term strategy that involves buying securities that mirrors a market index.
Thematic investing
Thematic investing
thematic investing focuses on investing in long-term or macro-level trends. Examples of thematic investment themes include water, robotics & AI, gaming & e-sports, and space exploration.
ESG investing
ESG investing
ESG investing emphasizes on investments that prioritizes optimal environmental, social and governance outcomes.
Factor investing
Factor investing
factor investing is a type of portfolio management strategy that targets quantifiable metrics or factors that can explain differences in stock returns. These factors often include value, size, volatility, momentum, and quality.
ETF
ETF
exchange traded funds, or ETFs refer to a type of investment fund that is traded on a stock exchange. An ETF usually tracks a generic market index and allows an investor to potentially lower risks and exposure, while diversifying their portfolio.
RIA
RIA
A registered investment advisor, or RIA, is an individual or firm that advises clients on investment decisions and manages their investment portfolios.
Backtesting
Backtesting
backtesting allows an investor to test an investment strategy using historical data to assess how it would have performed before earning actual returns.
Rebalancing
Rebalancing
rebalancing involves the process of realigning the weightings of assets within a portfolio, by buying or selling the assets to maintain the original or desired level of asset allocation or risk.
Systematic portfolio
Systematic portfolio
a systematic portfolio contains securities that maintains a price higher than the predetermined level by a systematic manager. A systematic portfolio strategy invovvles trading decisions based on market price trends.
Rules-based strategies
Rules-based strategies
a rules-based investment strategy follows smart investment rules and aims to deliver active returns in a cost-efficient manner.
Active returns
Active returns
an active return is the percentage difference between a benchmark and the actual return.
Index provider
Index provider
an index provider is a firm that creates, calculates and maintains market indices based on any given investment strategy.
Sustainable investing
Sustainable investing
sustainable investing is a type of investment strategy that prioritizes environmental, social and corporate governance impacts before investing in a particular company, venture or fund. It is also called ESG investing or SRI.
Investment strategy
Investment strategy
an investment strategy is a set of principles that guide an investor to make sound investment decisions based on their financial goals, values, risk tolerance and preferences.
Alpha investment strategies
Alpha investment strategies
alpha strategies are active investment strategies that choose investments that have the potential to beat the market. Alpha is also known as “excess returns” or “abnormal rate of return.”
Benchmarking
Benchmarking
benchmarking is the process of setting a standard against which the performance of an investment strategy can be measured.
Reconstitution
Reconstitution
reconstitution is the re-evaluation of a market index to ensure that an index reflects up-to-date market cap and is balanced.
Bonds
Bonds
a bond is a type of security where the issuer of a bond owes the holder of the bond a debt, and the issuer is obligated to repay the principal of the bond at the maturity date, as well as interest on the bond.
Asset allocation
Asset allocation
asset allocation is the process of dividing an investment among different types of assets, such as stocks, bonds and cash.
Quant
Quant
quant, or quantitative analysis, is the process of using mathematical and statistical methods to make investment decisions.
Index Funds
Index Funds
index funds are a type of mutual fund or exchange-traded fund (ETF) that aim to replicate the performance of a specific market index.
Mutual Funds
Mutual Funds
a mutual fund is a type of investment fund that pools money from several investors to purchase securities.
Derivatives Structured Products
Derivatives Structured Products
derivative structured products are financial instruments that combine derivatives with other underlying assets to create investment products with unique risk and return characteristics.
Hedge Funds
Hedge Funds
similar to mutual funds, a hedge fund is a type of pooled investment fund that trades in relatively liquid assets. Hedge funds primarily use portfolio construction, complex trading and risk management techniques in an attempt to improve performance.
Index Front-running
Index Front-running
traders who watch market prices know when an index fund will update its components, allowing them to front-run the trade by buying or selling the shares to get ahead of the market and gain an edge. This is not considered illegal because it rewards individuals who pay close attention to information that already exists in the market. However, SEC Rule 17(j)-1 prohibits insiders from taking advantage of their knowledge of client trades for personal gain.