Equity factor indices
Existing factor indices exhibit a broad range of deficits. Based on our experience in factor investing Alpha Centauri was able to address and resolve most of these problems. In detail, these issues are:
Quality of data
Most index vendors use conventional company datasets to calibrate their indices. One of the problems resulting from the use of this kind of data is, that they are not point in time, which means that the data were not known at the time of index calculation yet. Lagging does not solve the problem, because as with macroecomomic datasets most of these data are prone to hefty revisions.
Alpha Centauri uses point-in-time data series.
The majority of factor indices are rebalanced every six month. This frequency is far too low for successful factor investing / extraction, because the market reprices factor loadings in relatively short time frames. At the end, investors are holding “return free risk”, because return is priced out of the stock basket, while tracking risk remains.
Alpha Centauri rebalances in shorter spans.
Current concepts exhibit disproportionate systematic risk, mainly induced via country-, currency- and sector risk as well as exposure to other unwanted factors. High tracking error with respect to main indices is a byproduct.
Alpha Centauri uses FIS' investment Risk solution (APT) for index construction – a system awarded several times for its outstanding quality.