Active decisions made by asset managers in creating and maintaining index-based products should be transparent to investors, and the CFA Institute has developed a framework to assist in this. This framework aims to improve transparency, communication, and investor understanding of innovations such as smart beta ETFs and direct indexing.
It explains index-based strategies according to their level of active decision-making, placing indexing on a spectrum beyond traditional market cap weighting based on strategy, sources of returns, and level of discretion.
Rhodri Preece, CFA, highlights the outdated nature of a simple bifurcation between active and passive investment products, emphasizing the varied design features and layers of active decision-making in index-based strategies.
Finsum: Moreover, advisors need to be more familiar with these products because they bring solid advantages to clients.
- direct indexing
- custom indexing
- personalized indexing
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
