Index-Based Equity Strategies

This learning module provides a broad overview of index-based equity investing, including index selection, portfolio management techniques, and the analysis of investment results. 

Index-based strategies are rule-based, transparent strategies that do not involve identifying mispriced individual securities but instead seek to replicate the performance of an index. Indexes include broad market indexes, such as the S&P 500 Index, Nikkei 225, and FTSE 100, as well as those tailored more to a factor exposure, such as the Russell 1000 Growth and Russell 1000 Value Indexes. The main advantages of index-based investing are low costs, diversification, and tax efficiency. 

In the next section, we will compare factor-based strategies to broad indexing strategies. Then, we will look at how to gain exposure to an index, whether through a pooled investment, a derivative-based approach, or a separately managed account. We will also cover portfolio construction techniques for index-based strategies and discuss how a portfolio manager can control tracking error against the benchmark, including the sources of tracking error. In addition, we will introduce methods a portfolio manager can use to attribute the sources of return in the portfolio, including country returns, currency returns, sector returns, and security returns. We will also describe the sources of portfolio risk. A summary of key points concludes the module.