State Street Corporation has developed and begun licensing a suite of rules-based investment strategies, or investable indices, for institutional investors.
“This is not smart beta or thematic investing,” says Will Kinlaw (pictured), head of research and advisory for State Street Global Exchange. “These investable indices represent a new phase of dynamic investing. We’re packaging an active strategy in rules-driven index, where security weights can change dynamically as relevant factors and big data indicators evolve.”
The new range of indices, called IntelliGXSM, initially includes: GX Liquid Private Equity Index Series, which seek to track a portion of aggregate private equity performance by replicating private equity sector exposures in liquid public markets; GX Inflation-Managed Index Series, which use the PriceStats daily inflation series to tilt towards assets that can offer protection when inflation is rising, while also seeking to preserve higher yield during lower inflation scenarios; and GX Risk-Managed Index Series, which apply market fragility and turbulence indicators to adjust exposure to risk premiums, such as the broad equity market, in order to capture long-run portfolio growth while also mitigating downside risk.
“We’re essentially creating living indices that are flexible, evolving, transparent, and sensitive to new and meaningful factors,” says Kinlaw. “Rather than an index that constantly tilts towards one particular factor, like inflation, our index will lean into inflation-protected bonds when it sees inflation going up, and nominal treasury bonds when inflation is going down.”
“This is a natural next step in the evolution of indices,” says John Plansky, global head of State Street Global Exchange. “Investors are looking for different sources of alpha. We’re integrating the worlds of academic theory and financial markets, and using our unique access to new and alternative data sets, to help asset owners and asset managers design investment strategies that meet their changing portfolio needs. We’re providing the recipe with which investors can make the meal in the form of an ETF or another investable product.”