Welcome to The Index Investor
Founded in 1997, we provide independent analysis and insight each month on asset class valuation, portfolio construction and risk management to a global audience of investment managers, financial advisers and sophisticated individual investors.
We help our subscribers build more effective portfolios that are well diversified across broad asset classes and uncorrelated alpha strategies, make better decisions in the face of high uncertainty, and avoid large downside losses that sharply reduce the probability of achieving their long-term goals. We also help them to practically apply the latest academic research to improve their investment performance.
Our research is based on the application of complex adaptive systems theory (also known as the adaptive markets approach). We believe that financial markets are filled with positive feedback loops and nonlinear effects caused by the interaction of competing strategies (for example, value, momentum, and passive approaches) and underlying decisions made by people with imperfect information and limited cognitive capacities who are often pressed for time, affected by emotions, and subject to the influence of other people. As a result, while attracted to equilibrium, they never reach it, and can sometimes generate substantial over and undervaluations. Under these conditions, mean variance optimization is likely to produce disappointing portfolio results. Given this, we take an innovative approach to portfolio construction that is based on multiple regimes (high uncertainty, high inflation, and normal growth), stochastic optimization (to assess shortfall risk and goal achievement under a wide range of scenarios) and evolutionary search (for integrated asset allocation and rebalancing strategy solutions that are robust in the face of uncertainty).
We provide model portfolios in eight currencies, including AUD, CAD, CHF, EUR, GBP, INR, JPY and USD. They are based on a combination of broad asset class index funds and uncorrelated alpha strategies. The former include real return (inflation protected) bonds, nominal bonds, foreign bonds, domestic and foreign commercial property (real estate), commodities, timber, and domestic, foreign, and emerging market equities. We also add new asset classes to our model portfolios as they become investable. Our model portfolios also include explicit rebalancing strategies.
A second implication of our adaptive markets perspective is that when overvaluations reach dangerous levels, we believe that relatively passive approaches to risk management (such as diversification and automatic rebalancing) must be supplemented with more active approaches, like increasing allocation to liquid assets and buying put options. To enable our subscribers to make these decisions, each month we provide them with fundamental valuation and momentum updates for asset classes in all the currency regions we cover, as well as updated economic scenarios that assess potential asset class valuation and systemic risk changes over a longer time horizon. Our monthly research also includes feature articles on new products, strategies, and analytical methodologies.
At a time of unprecedented uncertainty in the world economy and financial markets, the analysis and insight we provide each month is more important than ever. For example, in March 2000 and again in May 2007, we advised our subscribers to hedge or reduce their exposure to dangerously overvalued asset classes.
The quality of our research has been recognized around the world.
As Barron's has noted, "If you're looking for loads of editorial content on asset allocation, check out IndexInvestor.com...The content is thorough, and the investing rationale carefully explained." In the U.K., Money Management magazine said "IndexInvestor.com keeps us up to date both with the latest thinking on risk, and the surest way of reducing it to a level that we find satisfactory."
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Our work has appeared in:
Barron's, Bloomberg, Financial Times, International Herald Tribune, MarketWatch, MSN Money, UK's Money Management, and UK's Financial Advisor.
What People Say About Us
Prudence requires that [you] invest widely and wisely... www.indexinvestor.com gives invaluable advice to investors on asset allocation." Financial Advisor Magazine, UK
"If you're looking for loads of editorial content on asset allocation, check out IndexInvestor.com... The site's content is thorough, and its investing rationale is explained carefully." Barron's
"The question of what is the right asset allocation... and which are the low cost index funds suitable for such a policy....is answered by www.indexinvestor.com, a brilliant...web-site." Money Management (A Financial Times publication)
We recognize the recent criticism about ETFs. We discuss the strengths and weaknesses of the different types investors may choose from today. In addition, there is much discussion about the financial viability of municipalities in light of unfunded pension plans and growing unfunded medical obligations. We explore this area of financial uncertain with the Canary in the Coal Mine, Rhode Island, the smallest state in the United States, which faces a significant financial crisis with its unfunded pension obligations.
In recent years, the IMF has substantially improved its analytical coverage of the world economy. Its semi-annual World Economic Outlook focuses on the global financial system and government fiscal policies. Not encouraging reading; however, we believe investors trying to make sense of the complexity and uncertainty we face today should make this an essential read. We summarize the IMF's reports this month.