iShares calls for investors to think differently about beta and index investing

Oct 22nd, 2013 | By | Category: ETF and Index News

iShares, the exchange-traded funds platform of BlackRock, has called on investors to think differently about index investing in a new report that provides a framework for choosing the right passive investment vehicle.

iShares calls for investors to think differently about beta and index investing

Ursula Marchioni, Head of iShares EMEA Equity Strategy & ETP Research and co-author of the report.

Stephen Cohen, Head of iShares EMEA Investment Strategy and Insight, said: “There’s been unprecedented evolution in the world of indices and index investment over the last three years. Going forward we believe this growth will continue, driven by expansion of the product breadth, increased adoption and greater blending of betas.”

He added: “However, as the range of indices and products expands, many of these are being called ‘smart beta’ and we believe this is a misleading label. New types of beta, including non-market capitalisation weighted indices, aren’t necessarily smarter or better, simply different. We recommend that investors reframe the concept of indexing. Focus on the outcome it targets, whether that’s to enhance returns or control specific risks, and then consider how that strategy might play out against the economic and investment landscape.”

The Art of Indexing report has been created as a resource for those considering, or participating in, index investing. It sets out the differences between ETFs, index mutual funds, certificates and swaps, as well as illustrating how the level of risk and return from tracking an index can vary greatly, even those that seem to provide similar exposures or have similar names. The report provides examples of newer strategies such as minimum volatility, risk-factor and fundamentally weighted indices and their benefits and drawbacks.

Ursula Marchioni, Head of iShares EMEA Equity Strategy & ETP Research, commented: “There’s a myth that tracking an index is a simple and automated process. This is simply incorrect. There can be significant differences between benchmarks, index-based investment vehicles and management styles, let alone between product providers. Investors looking at index funds need to apply due diligence as thoroughly as they would with actively managed funds. Close analysis and understanding is essential, especially at a time when the number of indices is increasing and newer forms of indexing are coming to market. Investors need the right information in order to select a strategy that will help them achieve their financial goals.”

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