{"id":9526,"date":"2020-08-27T14:48:00","date_gmt":"2020-08-27T18:48:00","guid":{"rendered":"https:\/\/ibkrcampus.eu\/trading-lessons\/why-does-index-selection-matter-2\/"},"modified":"2020-08-27T14:48:00","modified_gmt":"2020-08-27T18:48:00","slug":"why-does-index-selection-matter-2","status":"publish","type":"trading-lessons","link":"https:\/\/www.interactivebrokers.eu\/campus\/trading-lessons\/why-does-index-selection-matter-2\/","title":{"rendered":"Why does index selection matter?"},"content":{"rendered":"<p>Why does index selection matter?<\/p>\n<p>In evaluating the appropriateness of an index, investors should take a holistic approach and explore, for example:<\/p>\n<ul>\n<li>How well the index strategy suits their objectives<\/li>\n<li>How well it complements their beliefs<\/li>\n<li>How well it interacts with allocations across the rest of the portfolio<\/li>\n<li>Risk constraints<\/li>\n<\/ul>\n<p>The index attributes you should consider can also depend on how the index will be used. Indexes as benchmarks: Why index selection matters<\/p>\n<p><img decoding=\"async\" class=\"alignnone wp-image-2275 lazyload\" data-src=\"\/campus\/wp-content\/uploads\/sites\/2\/2022\/11\/Screen-Shot-2020-09-15-at-4.58.55-PM.png\" alt=\"\" width=\"656\" height=\"258\" src=\"data:image\/svg+xml;base64,PHN2ZyB3aWR0aD0iMSIgaGVpZ2h0PSIxIiB4bWxucz0iaHR0cDovL3d3dy53My5vcmcvMjAwMC9zdmciPjwvc3ZnPg==\" style=\"--smush-placeholder-width: 656px; aspect-ratio: 656\/258;\"><\/p>\n<p><img decoding=\"async\" class=\"alignnone wp-image-2276 lazyload\" data-src=\"\/campus\/wp-content\/uploads\/sites\/2\/2023\/01\/Screen-Shot-2020-09-15-at-4.59.42-PM.png\" alt=\"\" width=\"650\" height=\"644\" src=\"data:image\/svg+xml;base64,PHN2ZyB3aWR0aD0iMSIgaGVpZ2h0PSIxIiB4bWxucz0iaHR0cDovL3d3dy53My5vcmcvMjAwMC9zdmciPjwvc3ZnPg==\" style=\"--smush-placeholder-width: 650px; aspect-ratio: 650\/644;\"><\/p>\n<p><img decoding=\"async\" class=\"alignnone size-full wp-image-2277 lazyload\" data-src=\"\/campus\/wp-content\/uploads\/sites\/2\/2022\/11\/Screen-Shot-2020-09-15-at-5.01.40-PM.png\" alt=\"\" width=\"637\" height=\"166\" src=\"data:image\/svg+xml;base64,PHN2ZyB3aWR0aD0iMSIgaGVpZ2h0PSIxIiB4bWxucz0iaHR0cDovL3d3dy53My5vcmcvMjAwMC9zdmciPjwvc3ZnPg==\" style=\"--smush-placeholder-width: 637px; aspect-ratio: 637\/166;\"><\/p>\n<p><img decoding=\"async\" class=\"alignnone size-full wp-image-2278 lazyload\" data-src=\"\/campus\/wp-content\/uploads\/sites\/2\/2022\/11\/Screen-Shot-2020-09-15-at-5.02.28-PM.png\" alt=\"\" width=\"644\" height=\"450\" src=\"data:image\/svg+xml;base64,PHN2ZyB3aWR0aD0iMSIgaGVpZ2h0PSIxIiB4bWxucz0iaHR0cDovL3d3dy53My5vcmcvMjAwMC9zdmciPjwvc3ZnPg==\" style=\"--smush-placeholder-width: 644px; aspect-ratio: 644\/450;\"><\/p>\n<p>Indexes as the basis for index-tracking investment products: Why index selection matters.<\/p>\n<p><img decoding=\"async\" class=\"alignnone size-full wp-image-2279 lazyload\" data-src=\"\/campus\/wp-content\/uploads\/sites\/2\/2022\/11\/Screen-Shot-2020-09-15-at-5.04.18-PM.png\" alt=\"\" width=\"645\" height=\"325\" src=\"data:image\/svg+xml;base64,PHN2ZyB3aWR0aD0iMSIgaGVpZ2h0PSIxIiB4bWxucz0iaHR0cDovL3d3dy53My5vcmcvMjAwMC9zdmciPjwvc3ZnPg==\" style=\"--smush-placeholder-width: 645px; aspect-ratio: 645\/325;\"><\/p>\n<p><img decoding=\"async\" class=\"alignnone size-full wp-image-2280 lazyload\" data-src=\"\/campus\/wp-content\/uploads\/sites\/2\/2022\/11\/Screen-Shot-2020-09-15-at-5.05.10-PM.png\" alt=\"\" width=\"659\" height=\"356\" src=\"data:image\/svg+xml;base64,PHN2ZyB3aWR0aD0iMSIgaGVpZ2h0PSIxIiB4bWxucz0iaHR0cDovL3d3dy53My5vcmcvMjAwMC9zdmciPjwvc3ZnPg==\" style=\"--smush-placeholder-width: 659px; aspect-ratio: 659\/356;\"><\/p>\n<h4>Why is index governance important?<\/h4>\n<p>It is important for an index provider to have a formal governance system in place to proactively evaluate their indexes to ensure they are responding and adapting to the evolving market. Meanwhile, consideration must also be given to the fact that frequent implementation of index methodology enhancements can be burdensome to the end user. The index governance process must weigh the pros and cons when contemplating changes that may have a downstream impact on index users.<\/p>\n<p>Methodology changes and other index enhancements should be reviewed, considered, and approved within a well-defined governance framework that draws from internal expertise, as well as external independent committees of leading market participants.<\/p>\n<p><a href=\"https:\/\/www.ftserussell.com\/index\" target=\"_blank\" rel=\"noopener noreferrer\">FTSE Russell Indexes<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>The Main Goals:<br \/>\nUnderstand why index selection matters; comprehend how indexes serve as the basis for index-tracking investment products; and find out why index governance is important.<\/p>\n","protected":false},"author":899,"featured_media":0,"parent":0,"comment_status":"open","ping_status":"closed","template":"","meta":{"_acf_changed":false,"footnotes":""},"contributors-categories":[],"traders-academy":[],"class_list":["post-9526","trading-lessons","type-trading-lessons","status-publish"],"pp_statuses_selecting_workflow":false,"pp_workflow_action":"current","pp_status_selection":"publish","acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v26.9 (Yoast SEO v27.3) - https:\/\/yoast.com\/product\/yoast-seo-premium-wordpress\/ -->\n<title>Archives | Traders&#039; Academy | IBKR Campus<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.interactivebrokers.eu\/campus\/wp-json\/wp\/v2\/trading-lessons\/9526\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Why does index selection matter?\" \/>\n<meta property=\"og:description\" content=\"The Main Goals: Understand why index selection matters; comprehend how indexes serve as the basis for index-tracking investment products; and find out why index governance is important.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.interactivebrokers.eu\/campus\/trading-lessons\/why-does-index-selection-matter-2\/\" \/>\n<meta property=\"og:site_name\" content=\"IBKR Campus EU\" \/>\n<meta property=\"og:image\" content=\"https:\/\/ibkrcampusdev.wpengine.com\/wp-content\/uploads\/2022\/11\/Screen-Shot-2020-09-15-at-4.58.55-PM.png\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data1\" content=\"1 minute\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\n\t    \"@context\": \"https:\\\/\\\/schema.org\",\n\t    \"@graph\": [\n\t        {\n\t            \"@type\": \"WebPage\",\n\t            \"@id\": \"https:\\\/\\\/www.interactivebrokers.eu\\\/campus\\\/trading-lessons\\\/why-does-index-selection-matter-2\\\/\",\n\t            \"url\": \"https:\\\/\\\/www.interactivebrokers.eu\\\/campus\\\/trading-lessons\\\/why-does-index-selection-matter-2\\\/\",\n\t            \"name\": \"Why does index selection matter? 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