Bring transparency to your equity and multi-asset strategies

This article was written by Alan Campbell, Head of Index Product Management at Bloomberg.

Benchmarking against modern markets has become more challenging as the range of data and financial instruments available to investors grows in size and variety.

With the investable universe expanding through changing corporate structures and the proliferation of new factors, especially ESG, traditional index services need to adapt to accurately reflect the markets they’re designed to track.

Indices require clean, ordered and unbiased data. Without it, they can’t hope to offer the sort of transparency in pricing information and returns calculations that investors need to help them build their benchmark-beating strategies. A fundamental challenge for index providers is accessing the right data — and divining insights from it. Not only that, but with a huge expansion of data feeds and data formats in recent years, it has become difficult to access the right information and establish what of it should be used and trusted.

The modern dilemma is illustrated in the example of the snowballing market for ESG investments. By Bloomberg estimates, some $30T is committed to assets that present one or more ESG elements. As a new set of factors, however, there is little global standardization in the assessment of what might be considered compliant. A variety of measures have emerged but they are all built on separate methodologies and consequently cannot be compared. That makes compiling a trusted ESG index challenging for administrators, and establishing a portfolio difficult for fund managers, advisors and investors.

Evolving to meet client needs

The need for a common language across asset classes is a major reason why Bloomberg has broadened its focus beyond fixed income and commodity markets, expanding its existing U.S. equity index family to include 23 developed market countries. This expansion will help clients create and better understand their new equity exposures and measure the performance of their multi-asset strategies.

Bloomberg’s expanded equity benchmark service aggregates data from the investable universe of developed market countries that represent over $50T of market capitalization. The new functionality, which will be available through the Bloomberg Terminal’s portfolio risk-management capabilities (PORT), will provide a set of off-the-shelf benchmarks that can be dissected and grouped according to a potentially limitless array of methodologies to suit individual customers. The whole family of indices can be accessed via IN <GO> on the Bloomberg Terminal.

Constructing new indices

All Bloomberg indices are built on the same trusted capital markets expertise and data which underpin its products. Marrying index analytics with indices developed by industry-leading teams of analysts, proven risk-modelling expertise, real-time news feeds and an optimization solution means that we can find, and explain, optimal risk-return profiles.

That same optimization process is applied to customized products, which can cater to customers wanting to benchmark against any combination of equities and multi-asset portfolios, including Bloomberg’s fixed income, equity and commodity benchmarks. Custom indices can be built from the ground up or based on known benchmarks. For the latter, investors can add filters that tilt weightings or eliminate companies that have characteristics unattractive to a desired outcome.

The engine behind each index will also add value for exchange-traded funds, which can take advantage of the broad data reach (including proprietary thematic info) to build their bespoke benchmarks. That will be vital for the growing retail market which wants reliable and novel indices to help build their diversified portfolios. In the same way, Bloomberg’s multi-asset benchmarks incorporate fixed-income, equities and commodities, and can even include digital assets like Bitcoin.

Offering benchmarks, systematic strategies and custom solutions based on consistent portfolio and benchmark analytics helps to raise the bar for the industry by helping clients explore more and more interesting ideas. Transparency and trust in the data used to create the indices is the first step in helping to set a new standard.