Next Generation of Indexing: Combining Optimized Indexing with Dynamic Beta Management

Abstract

The first generation of indexing started with plain vanilla market-cap weighted indices. Based on the 1st generation of indexing, "smarter" approaches to equity beta were created, which are nowadays marketed as "Smart Beta" indices (2nd generation). Nevertheless these still exhibit severe downside risks for the investor independent of the applied weighting scheme.The 3rd generation of indexing will go one step further and combine an optimized indexing approach ("alternative beta") with a dynamic asset allocation. As a result, the NYSE Dynamic U.S. Allocation Index has been developed as market-proven forecast-free, rules based investment strategy uniting U.S. Equities and U.S. Treasuries to provide stability, active risk-control and outperformance to the investor’s portfolio. The investment strategy is already set up as an index and managed in different UCITS investment funds in Europe. The introduced US strategy can easily be implemented via Futures, Exchange Traded Funds or on a managed account basis.