About Indexes and Index Families
To perform the analysis shown by the examples in Use Benchmark Data in Performance Reports, you need to load or calculate the index weights, durations, and returns for the index. For example, to put together the report, you load the daily weights and returns by GICS sector for the index. The data elements related to index family data and how they are related are described below.
Index
An index represents the average price level of a particular asset class or market. Periodic changes in the index represent the average performance of the underlying securities. An appropriate index for a particular fund represents the performance of the universe of assets that are eligible for portfolio construction according to the manager's mandate and specific strategy.
For example, the S&P 500 index represents the performance of U.S. large cap stocks. You can use the S&P 500 as the benchmark to judge the performance of funds that invest in the U.S. large cap stock asset class.
Sponsor
There are thousands of indexes and each index has a sponsor. For example, S&P publishes the S&P 500 index. Suppliers of market indices include financial data publishers (S&P, Dow Jones), pension consultants (Frank Russell, Wilshire), and brokerage firms (Lehman Brothers, Morgan Stanley). There are multiple, competing indexes that represent the performance of every major asset class, and new indices are continually developed. These indices differ in their construction methodology. Because these indices differ in their construction methodology, there is the demand by global investors for a consistently constructed set of indices representing each market around the world. MSCI (Morgan Stanley Capital International), FTSE (Financial Times London Stock Exchange), Lehman, and others publish these global families of indexes.
Index Family
For each index family that you choose to maintain, you need several related data elements. First, each index family has one or more drill-down analysis structures.
Structures have a total level, segment level, and constituent level. An example is shown the following figure. This example displays the MSCI GICS structure, which includes the following:
TOTAL
GICS Sector
GICS Industry Group
GICS Industry
GICS Sub-industry
In this structure, there are four sector and industry segment levels below the total index level. The constituents of the index are the individual securities that make up the index. Nabors Industries is a component of the total index, and is attached to the GICS Sub Industry node Oil & Gas Drilling. There are several nodes at each level of the index structure.
The index parent and child relationship tells you the drill-down structure of the index families. Index families that have more than one structure have more than one parent for each child. For example, in the MSCI family there are several structures:
Total/Developed-Emerging/Country
Total/Region/Country
The USA index is a child of both the Developed markets node of the Developed-Emerging index and the North America of the world Region index. Note that the parent and child relationship changes over time, and these relationships are not always available in data files.
Total Level Only Index
Not all indexes have segments and constituents. There are total level only indexes like interest rates and other economic statistics.
At the total level, you receive several data elements. The index identifier is the entity identifier for the index. For the index, there is usually both an index level or index price, and an index return for each day or month. Note that these are pre-calculated by the index publisher, that is you do not have to calculate them in PACE. The following figure shows an example showing how the returns and levels are calculated.
In addition to the index level and return, the index has a total market capitalization, which is the sum of the market value of each of the constituents in the index.
Index publishers also publish various analytics about the index. For example, the index duration, quality, beta, and P/E ratio.
The same statistics are available at the segment levels. In addition to the index level and return, market capitalization, and analytics, the segment weight within parent shows what proportion of the index is made of each economic segment.
At the constituent level there is descriptive data for each constituent including a security identifier, like Sedol or Cusip, security static data like the name of the issue, and classifications for each segment that tell you what segment each constituent belongs to.
For each constituent, there is a buy-and-hold return, which is the official index vendor return for the constituent over the period, as well as the security-level market capitalization, analytics (duration and so on), prices, and exchange rates.Â