Portfolios - EDHEC-Risk

Managing Investments t in Alternative ti Indices
• Once regarded as exotic curiosities, non CW equity indices have
now made it into the mainstream.
• This acceptance raises a new set of questions, and one may
expect that adopting these non CW indices as benchmarks should
require at least as much attention as investing in active managers.
• Investors face in particular the following challenges:
– Selecting alternative indices (vs. managers): in search for robustness
– ad-hoc schemes versus schemes consistent with portfolio theory;
– Diversifying alternative indices (vs. managers): different schemes
perform differently in different market conditions;
– Managing tracking error of alternative indices (vs. managers):
diversification is not effective at managing extreme relative risk.