When entering the site and if cookies are prevented from being saved, a message must be displayed
in a popup message box informing the user that their local browser settings are preventing
cookies from being saved and that cookies are required for the site to work. Exact text
to be provided for UAT. On OK click of the message, the user should be redirected to
the global landing page (currently ssga.com).
To hear State Street Global Advisors’ equity indexing leader, Lynn Blake, tell it, most client meetings begin the same way: “First and foremost, most clients want to know, ‘Did the index fund do what it was supposed to do? Did anything go wrong?’ ” The answers to those questions are important, but, she adds, they are often merely a jumping-off point. Increasingly, talking about performance “isn’t the end of the conversation with clients,” Lynn says, “but the beginning of a broader discussion about how we get there.”
The Pursuit of No Surprises
The reality is that a lot goes into ensuring that things “go right” with index investing. “Making sure a fund tracks closely to the index is a bit like the duck paddling under the water,” Lynn says. “Everything appears calm above the water, but underneath is where all the action is, the thousands of individual decisions that need to be made correctly.”
What goes into some of those decisions? “It’s a combination of things, but it starts with people,” Lynn says. She points to portfolio managers like Emiliano Rabinovich — one of the more than 100 long-tenured indexing professionals at State Street Global Advisors. In this field, experience counts for a lot, she says. “Having been there at the beginning of the indexing revolution, our firm has built up a lot of institutional knowledge about the countless index rules and market nuances required to effectively manage and trade an index portfolio.”
Scale, as it turns out, also matters, according to John Tucker, another indexing veteran and operations expert. At a moment when many firms are trying to offer their clients index strategies, the ability of sophisticated trading and investment processes and proprietary index portfolio management systems to pursue the lowest overall implementation cost can’t be overstated.
“You need professionals who can do a variety of things — everything from implementing an index in the most cost-effective way to creating index change strategies that maintain and build value as companies come in and out of multiple indexes,” John says. “It’s also critical to have local trading folks on the ground who really understand major global markets and can get the best possible price. And you need a rigorous process ensuring that all regulatory and contractual guidelines and market, credit and liquidity risk requirements are met. Honestly, you wouldn’t believe how many people have to be involved at a very detailed level.”
Managing the Unexpected
That brings up an obvious question: What do you do when something unexpected happens or there’s a complex corporate action? For example, when Verizon bought Yahoo’s internet business, the remaining part of Yahoo registered as a closedend fund, which is not eligible for index inclusion, therefore requiring all existing shares to be quickly sold. “That was an exceptional situation that you don’t encounter every day,” says Emiliano, who manages both traditional index funds and a variety of alternative beta strategies. “We had to plan for Yahoo’s exit from the index, and there were a lot of variables to consider.” So, does the index team go to “DEFCON 1” at those moments?
“For us, market events are actually less dramatic than you might imagine,” Emiliano says. “Our portfolio managers and traders meet on a daily basis to plan and discuss things like the timing of trades and how to manage them across different markets. In the case of Yahoo, we started trading a week in advance, liquidating positions over the course of six or seven days. All the while you had to understand things like how every choice you make would affect the hundreds of other companies changing weight, and how you minimise taxes and transaction costs. Do you buy stocks or futures or swaps? How much cash is too much cash in a portfolio? It was a pretty active process.”
Given all the decisions that go into indexing, do clients really want to know about all of the “duck paddling”? “In the past, few did,” Lynn says, though, she quickly adds, that is starting to change. Why is that? “Because,” she says, “investors are beginning to realise that index performance is about a lot more than the expense ratios alone. They want to get educated on it. And when you think about the kinds of things people are trusting us to invest for — retirement, scientific breakthroughs, infrastructure — that’s the way it should be.”
Products referenced in this piece are not available in all regions. These references are provided for illustrative purposes only. The content of this web page should not be considered a recommendation to invest in a particular sector or to buy or sell any security mentioned.
The above-referenced SPDR S&P 500 (SPY), fund has not been registered for sale in or listed on any market outside of the United States, nor has any regulatory authority outside of the United States approved the sale or distribution of the funds. Persons wishing to invest in the SPDR S&P 500 (SPY), fund should satisfy themselves as to full observance of the laws of the relevant territory in which they are resident in connection with any such investment.
Investing involves risk including the risk of loss of principal.
Securities lending programs and the subsequent reinvestment of the posted collateral are subject to a number of risks, including the risk that the value of the investments held in the collateral may decline in value and may at any point be worth less than the original cost of that investment. The value of the debt securities may increase or decrease as a result of the following: market fluctuations, increases in interest rates, inability of issuers to repay principal and interest or illiquidity in the debt securities markets; the risk of low rates of return due to reinvestment of securities during periods of falling interest rates or repayment by issuers with higher coupon or interest rates; and/or the risk of low income due to falling interest rates. To the extent that interest rates rise, certain underlying obligations may be paid off substantially slower than originally anticipated and the value of those securities may fall sharply. This may result in a reduction in income from debt securities income.
The information provided does not constitute investment advice and it should not be relied on as such.
All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.
The whole or any part of this work may not be reproduced, copied or transmitted or any of its contents disclosed to third parties without SSGA’s express written consent.
This information is for informational purposes only, not to be construed as investment advice or a recommendation or offer to buy or sell any security. Investors should always obtain and read an up-to-date investment services description or prospectus before deciding whether to appoint an investment manager or to invest in a fund. Any views expressed herein are those of the author(s), are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may make different investment decisions for different clients. There are no guarantees regarding the achievement of investment objectives, target returns, portfolio construction, allocations or measurements such as alpha, tracking error, stock weightings and other information ratios. The views and strategies described may not be suitable for all investors. SSGA does not provide tax or legal advice. Prospective investors should consult with a tax or legal advisor before making any investment decision. Investing entails risks and there can be no assurance that SSGA will achieve profits or avoid incurring losses.
Performance quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, so you may have a gain or loss when shares are sold. Current performance may be higher or lower than that quoted.
Images of NYSE Group, Inc. are used with permission of NYSE Group, Inc. Neither NYSE Group, Inc. nor its affiliated companies sponsor, approve of or endorse the contents of this program. Neither NYSE Group, Inc. nor its affiliated companies recommend or make any representation as to possible benefits from any securities or investments.