Artificial intelligence (AI) is providing new tools to index providers who face increasingly demanding requirements from asset owners and managers who have increasingly sophisticated investment goals.
As the demand for indices and index-based solutions continues to grow, the use of AI in indexing has become more evident with the recent launch by the S&P Dow Jones Indices (S&P DJI) of its MyIndex platform, which integrates AI technologies into its services to provide customized index solutions for its clients, including those in the Asia-Pacific region.
The new platform, launched on September 16, allows investors to build bespoke index-based portfolios by customizing well-known indices, such as the S&P 500. The use of AI and data-driven technologies makes index customization more efficient, such as by helping automate tasks like tax-loss harvesting and portfolio rebalancing.
In an interview with The Asset, Ken Chan, head of custom indices, Asia-Pacific, at S&P Dow Jones Indices, says clients in the region are becoming more sophisticated and demanding in terms of investment strategies and goals. This, in turn, has driven the need for more customized indices.
The trend towards sustainability investing, for example, has required investors to be granular in defining their sustainability objectives and build it into their portfolios and investment strategies. This means integrating multi-asset portfolios, smart beta strategies, and different asset classes.
“They need customized indices. As index provider, we try to be ahead of the curve in terms of what our investors are looking for. We are constantly expanding our toolbox in terms of what we can provide our clients as tools to further enhance customization of their portfolios. We try to understand their requirements, what exactly they are looking for when building an index, what is their trading capability, and what the market is looking for. We work with them in a very collaborative manner to find an optimal index solution for the client. Each index solution could vary depending on the client’s position,” Chan says.
In the case of the MyIndex platform, S&P DJI is collaborating with the Brooklyn Investment Group, through Brooklyn’s management accounts platform, to enable market participants to build and implement bespoke, index-based portfolio solutions.
“One of S&P DJI's key priorities as an independent index provider is to continue offering choice to the market. As such, S&P DJI engages and collaborates with a wide range of financial institutions and product providers to license our innovative indices and data to make them available to a variety of market participants and channels,” S&P DJI chief executive officer Dan Draper says in a statement issued during the launch of the MyIndex platform. “By collaborating with Brooklyn to deliver our indices on their technology-based platforms, S&P DJI looks forward to facilitating access to our intellectual property as a new generation of investors participates in markets and reflects the ongoing transformation in global financial markets.”