This article was originally published on ETFTrends.com.
The worlds of academic theory and financial markets are another step closer together following the launch of State Street Corporation's new investable indices for institutional investors.
State Street announced Tuesday it has developed and begun licensing a suite of rules-based investment strategies.
The launch comes from State Street's data and analytics division - not SSGA's asset management division.
Will Kinlaw, head of research and advisory for State Street Global ExchangeSM, said the indices are not smart beta or thematic investing, rather these are investable indices that 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,” he said.
Kinlaw told ETF Trends that the new investable indices evolved from client demand from many interested in getting signals packaged as an index.
“Many are interested in an index that is a dynamic investment strategy packaged as index that leverages these new and interesting sources of information,” Kinlaw said.
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
- 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
With IntelliGX, State Street designs the index, using its highly-differentiated data sets sourced internally or from its relationships with big data providers. Index specifications are then delivered to a third-party calculation agent who independently publishes index values. The licensee, or end-user asset owner or asset manager, implements the index based on the weights received in its investable product.
Kinlaw said they are essentially creating living indices that are flexible, evolving, transparent, and sensitive to new and meaningful factors.
“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,” he said.
In addition to providing investment process transparency, IntelliGX offers liquidity and cost-efficiencies as licensees can expand their research capabilities at a variable cost.
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