Diversifying portfolios with index investments

With a manageable investment amount plus low costs and fees, index funds provide access to a broadly diversified portfolio across all asset classes. They can include a large quantity of securities from different countries, regions and industries, but can also focus on specific themes. A key feature of index funds is their straightforward and transparent structure. They also combine very well with active strategies.

Swiss Life Asset Managers has responded to the sharp increase in demand for indexed investment solutions by expanding its existing product range. In addition to the well-established, purely active investment strategies, we now also offer purely “passive” i.e. indexed investment strategies – as well as a combination of the two. This makes it possible to cover an even broader range of customer needs at once. A tried and trusted team of specialists with many years of experience and an excellent track record draws on its comprehensive expertise to deliver both standardised and tailored investment solutions. These primarily include mixed index mandates comprising index funds from various asset classes, such as liquidity, equities, bonds and real estate.

The selection of index funds is based on the reference indices defined by the customer. The aim is for the mandate’s performance to deviate as little as possible from the performance of the specified benchmark (customer’s investment strategy).

The actual weightings of the individual asset classes may deviate from the contractually defined target weightings due to market movements. The portfolio therefore has to be reallocated i.e. rebalanced from time to time. It is important to select the appropriate reallocation mechanism.

While monthly rebalancing offers the lowest risk of deviation (tracking error), it also means higher transaction costs. The bandwidth approach is more advantageous. Here, the target weighting of each asset class can be within a predefined range. As soon as it reaches the upper or lower limit, the rebalancing process is triggered. This procedure allows transaction costs to be kept to the necessary minimum. The key is therefore to strike a balance between increasing tracking error and reducing costs in order to achieve stable added value over the long term.

It is also possible to make an independent selection from the universe of index funds with volume-dependent pricing or to award customised mandates with direct investments.

A popular type of strategy is the core satellite approach: the majority of the portfolio is invested cost-effectively in a few index funds (core portfolio). Special strategies allow actively managed investments, so-called satellites, to be included, from which investors can expect higher returns. Such satellite investments often have a thematic investment style and focus on specific sectors or factors.

The new index-based investment solutions from Swiss Life Asset Managers are being launched for Swiss investors in the form of Swiss fund structures that are attractive from a tax perspective. Institutional investors, such as pension funds and insurance companies, who want to invest efficiently in an index of their choice, benefit from these dedicated index solutions.