First investment banks developed tools to act like hedge funds. Now their risk strategies are spreading to traditional money management.
With the help of its first big client,
Axioma, Inc., a leading provider of advanced tools for portfolio optimization and risk analysis, chipped in to manage risk using stocks in the familiar Russell 1000, 2000 and 3000 indices.
Intended for both investing and hedging, the factor indices are designed as a highly tradable basket of stocks that closely tracks an element of risk and minimizes exposure to other risks. Turnover, transaction size and the number of companies will be strictly limited to keep down cost.
Deutsche Bank AG and
The appetite for the products has come from pension funds and sovereign wealth funds that want to beef up performance of indices without paying for active management, which could cost twice as much. But it’s still unclear whether the indexes will perform if used passively, with a “set it and forget it” rule.