Asset Class and Strategy Investment Tracking Based Approaches

Abstract

In recent years, there has been a dramatic increase in the number of systematic algorithmic products that attempt to capture the risk and return of a particular asset class or fund strategy. These products may be stand-alone investments created to provide direct “replication” (e.g., almost identical securities) of a comparison benchmark or they may be constructed expressly to “track” (e.g., similar but not identical securities) an existing non-investable or investable benchmark. Various approaches exist in the creation of these tracker products. In this article, the authors review alternative approaches to the creation of investment trackers. The authors concentrate on the underlying rationale for fund tracker products, the alternative approaches often employed to create such products, and practical concerns related to strategy or fund tracking based products. They also provide a brief review of the performance of existing tracker products as well as examples of tracker products use in multi-asset allocation.

TOPICS: Real assets/alternative investments/private equity, portfolio construction, exchange-traded funds and applications, quantitative methods