By its very nature, index investing is a relatively
effortless way to manage institutional money. All a fund manager
need do is pile assets into a basket of securities that replicates
the relevant yardstick, sit back and let the markets do the rest.
For the majority of active investors, index benchmarks provide the
foundation for portfolio construction. The fraction of assets
diverted away from market-neutral positions determines whether a
fund outperforms or underperforms.
And for the providers of the indices against which performance is
measured, calculating prices and disseminating data are the twin
keys to establishing market dominance. Often this opens up more
lucrative relationships with users - based either on license fees
for information and analytics or via revenues from transactions
services, portfolio investment advice and wholesale portfolio
rebalancing.
Indexing is traditionally a fairly straightforward exercise - even
if the methodology used to create and maintain an index...
