Veteran index adviser, Laurence Black, has launched his own portal, The Index Standard, focused on all things index, provider of unbiased ratings, analytical insights and forecasts on investible index products.
“Whenever we do research, we realise that not all indices are equal,” Black says. “I have spent 20-odd years in investment banking, designing indices at Barclays for the last nine years and before that I ran the ABN Amro index group designing some of the biggest indices. Over the course of time, indices have become more popular but there are loads of questions that Wall Street and the City of London answer with complex language that the man on the street does not understand.”
Black feels there is a real need for people to understand indices. His new offering is also designed to help investors compare a wide range of indices, not just their prevailing performance but also taking up that crystal ball and looking into the future by highlighting their long-term potential.
His firm also serves as an information portal by providing guides on investment trends and concepts, unmasking the mystique of index investments and making finance more approachable.
The quest at the moment for wealth managers throughout the world is the hunt for dividends and income but his firm’s latest research shows that the top dividend indices with sustainability screens inbuilt did up to 10 per cent better than indices that only look at a historical dividend.
“We think that structured products could replace fixed income products,” Black says. “Forecasted returns are negative or zero so you need a structured product with a capital guarantee but don’t just buy anything – you need to screen to check that the underlying index is high quality.”
The firm conducts its research through rating hundreds of US ETFs. “We use ETFs to look at the underlying index and assess if it is a robust and well-designed index, which is what you need will get you from a to b,” he says, likening an index to the chassis on a car.
“I started as a trader and it surprised me when people wanted a good back test. Why always buy high and hope to seller even higher later – I want to help people to look forward, with forecasted projected returns on indices. We can then use our data science platform to run simulations to produce expected forecasts so essentially we help investors look through the front window of the car when driving, not looking through the rear view mirror.”
Looking at the index world, Black notes that smart beta indices haven’t outperformed or done much better during the recent period of market volatility. “You have to pick well,” he says, “because some of the recent drawdowns were in line with the major benchmarks. I think with smart beta, the jury is still out.”
He notes that some of the multi-factor indices were using lots of metrics which work much better in the US, against the rest of the world.
“This could be because in the US there is more high quality reporting and the accounting metrics are better so when it goes to the emerging markets with more infrequent reporting, the factor metrics are getting the same clarity or granularity.”
ESG has performed well, Black observes. “ESG filters seem to be high quality and able to identify a resilient and robust company,” he says. “And ESG in emerging markets has done well with quality screens to get rid of the worst performers which in emerging markets is important.”