Friday 11 November 2016

Choose the Index which is right for your portfolio

The financial world is thankful for the introduction if indices. It has become of the key statistic value in measuring the performance of a portfolio or the market. If you switch to any of the financial news channels, you would hear the value of various indices going up or down. These are the representative of different markets and portfolios. However, there is not just one kind of index. There are different indices used by investors to measure different components of market. There are also country wise indices which measure the performance of the securities market of their respective country. One of the most common indices we hear is a price index which constitutes the changes in prices of different commodities, portfolios, and assets. However, one of the better ways to measure the change in prices and yields are the total return indices. These indices not only incorporate the changes in prices but also include dividends, interests, rights offering, and other distributions as well.
An investor needn’t worry about using the indices used by the market for a make believe portfolio. He can use a price index or a total return index which is customized to replicate and measure his specific portfolio. A custom index is a tailor made solution which is designed to suit the client’s requirement, unique mandates or investment strategies. So, clients now have an opportunity to modify an existing index or make a new index suiting their plans. They can vary across variety of asset classes, and are not limited to equities, commodities, and fixed income. Whereas if an investor is only dealing in equity; they can even opt for dividend index. These dividend indices can include the highest yielding stocks relative to their home markets and are available for global and regional markets based on their dividend payments. There are dividend indices which aim to maximize the yield of the index portfolio on a short term basis.
Thus, investors today have a lot of options. There are different indices for an investor to choose from. Therefore, an investor should have the knowledge about different indices out there and choose the one that represent their investment strategy the most.

Sunday 6 November 2016

Index Providers and the importance of Indices

Financial world has grown tremendously in the last few decades. With not only different innovations in terms of financial products, we also have different ways to measure the returns on these financial products and market. A very popular method of calculating or measuring the market and other financial products is what we call an index. It is an indicator to measure something, and in financial world it documents the changes in financial market to a single number. In stock and bond markets, their indices will consist of an imaginary portfolio of stocks and measure the changes in those stocks. There are different ways devised for index calculation and usually involves complex calculations and good understanding of the market. Thus, the organization for this job is an index provider.
Such companies are involved in calculating indices to measure the different classes of assets and are also employed for index maintenance so that they have a proper eye on how these indices are moving. Index providers compile statistics related to various asset classes, industries, and securities, to provide the investors with a means to quantify their investments and understand how the markets are moving. Over the time, they have come up with differentiated and improved methodologies to track the market and the opportunities provides so that they could bundle them in an index. They are constantly monitoring the indices to ensure that any changes in the markets are reflected in the index values. Even in case of an ETF, there is always an underlying index and thus an index provider. The portfolios assembled by the ETF provider will mirror the performance of an underlying index and thus it can provide exposure to entire universe of securities consisting in that index. This achieves the diversity in investment while still having a target focused approach.
The way the financial world is moving is constantly changing but the importance of indices will never lose even when other new and innovative financial products and measures are introduced. Having a closer look on these indices will help you in making the right investment choices and maximizing your wealth. So evaluate continuously and keep on investing!