Sarasin & Partners has teamed with Indexx Markets to create a “more efficient” index for the S&P 500.
Sarasin & Partners head of quant and fund manager Andrea Nardon says the firm is looking to unveil a fund following the newly built Sarasin US Systematic Efficient Strategy Indexx in the next few months.
The US market is an extremely efficient market, which is why most fund managers underperform, he says.
However, the S&P 500 is an inefficient index for tracking the market, he argues.
Nardon believes a strategy that focuses on the 250 companies with the best long-term risk-return measures will outperform. The strategy is equally weighted, meaning the fortunes of smaller companies will have a disproportionate impact on returns.
If it is a success, it could be transplanted to other developed markets such as the UK and Europe, he adds.
Indexx Markets co-founder James d’Ath says bespoke indices give asset managers the ability to separate and sell their investment process.
Hargreaves Lansdown head of passive investing Adam Laird says investors should take the time to see how the fund performs before jumping in.
He says: “The S&P is heavily weighted to the top few companies like Apple, Exxon Mobil and others which dominate the index. With an equally weighted index you get more exposure to those stocks that don’t shine through as much as in the standard construction.”