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Meaningful investment solutions should start with an understanding of clients’ goals. In retirement planning, the main problem faced by individuals is to finance a sufficient and stable stream of replacement income in retirement. EDHEC-Risk Institute is grateful to Merrill Lynch for having supported the research project that has provided the conceptual foundations for the design of the EDHEC-Princeton Retirement Goal-Based Investing Index Series. The Retirement Goal-Based Investing Indices, developed with the Operations Research and Financial Engineering Department at Princeton University in the context of our joint research programme on Investment Solutions for Institutions and Individuals, are an example of these concepts being implemented. They represent asset allocation benchmarks for innovative mass-customised target date solutions for individuals preparing for retirement.

EDHEC-Princeton Goal Price Indices
Retirement Income
March 2019 Values
Zone, Retirement year
Not adjusted
Cost-of-Living-adjusted
US, 2023
13.77
17.67
US, 2028
11.68
16.53
US, 2033
9.82
15.33
US, 2038
8.24
14.21
US, 2043
6.93
13.20
US, 2048
5.85
12.32
US, 2053
4.97
11.55
US, 2058
4.22
10.84

EDHEC-Princeton Goal Price Indices
Retirement Wealth
March 2019 Values
Zone, Retirement year
Not adjusted
Cost-of-Living-adjusted
US, 2023
0.91
0.98
US, 2028
0.79
0.94
US, 2033
0.67
0.88
US, 2038
0.57
0.82
US, 2043
0.47
0.76
US, 2048
0.39
0.70
US, 2053
0.33
0.65
US, 2058
0.28
0.61

HIGHLIGHTS JANUARY 2019

  • As usual, monthly changes in Goal Price Indices are mainly driven by changes in US long-term interest rates. The first 10 months of 2018 featured an increase in long-term rates, with the 10-year rate growing from about 2.4% right after New Year’s Eve to more than 3% in October. In contrast, the last quarter saw a decrease that took the 10-year rate back to 2.7% at the turn of the year. As a result, all Goal Price Indices start the year at higher levels than where they were in early December;
  • Taking the example of an individual who plans to retire in 2038 and targets fixed replacement income for twenty years starting in 2038, it cost $7.98 in December 2018 to acquire $1 per year of income. As of January 2019, the price of the same stream of replacement income has risen to $8.46. Put differently, this person could have purchased $12,531 per year with $100,000 in December 2018, but the same amount of retirement savings in January 2019 can only finance $11,820 per year.

Highlights History

 

EDHEC-Princeton Goal-Based Investing Indices
Retirement Income
February 2019 Returns (%)
Zone, Retirement year
Not adjusted
Cost-of-Living-adjusted
US, 2023
1.66
1.63
US, 2028
2.09
2.06
US, 2033
2.70
2.69
US, 2038
3.51
3.51
US, 2043
3.89
3.89
US, 2048
3.89
3.89
US, 2053
3.89
3.89
US, 2058
3.89
3.89

EDHEC-Princeton Goal-Based Investing Indices
Retirement Wealth
February 2019 Returns (%)
Zone, Retirement year
Not adjusted
Cost-of-Living-adjusted
US, 2023
2.05
2.05
US, 2028
2.41
2.41
US, 2033
2.89
2.89
US, 2038
3.56
3.56
US, 2043
3.89
3.89
US, 2048
3.89
3.89
US, 2053
3.89
3.89
US, 2058
3.89
3.89

HIGHLIGHTS JANUARY 2019

  • Over the first three quarters of 2018, the general move was a rise in long-term interest rates that caused negative returns for GHPs in many months. On the other hand, the PSP followed a roughly rising trend. According to the weighting rule described in the Ground Rules of the Index Series, the percentage allocation to the PSP in an index is increasing in the relative return of the PSP with respect to the GHP, so this allocation tended to increase until the autumn of 2018. Indices with the longest retirement horizons (2038, 2043, 2048, 2053 and 2058) even became fully invested in the PSP;
  • Any change in the value of a Goal-Based Investing Index is the result of changes in the values of its constituents (the GHP and the PSP) and the relative weighting of these constituents in the index. With high PSP allocations, indices with long horizons were severely exposed to the US equity market downturn in December: the three major US stock indices (NASDAQ, Dow Jones and S&P 500) experienced substantial losses. In particular, the PSP lost 10.04%, so all indices that were entirely invested in this constituent at the beginning of December displayed the same negative return. Indices with retirement dates in 2023, 2028 or 2033 posted less negative returns in December, but still less than –4%;
  • The rebalancing rules of the index series stipulate that in every January, each Goal-Based Investing index is rebalanced back to the weights of a deterministic target date fund with the same target date as the index. This rebalancing operation takes place irrespective of market conditions, so January is the only month in the year where the relative weighting of the two constituents does not reflect their respective past performances and is driven solely by the retirement date. For all indices, rebalancing has led to a lower PSP allocation than at the beginning of December 2019. Just as in a standard target date fund, indices with longer horizons are more exposed to the risk of equities falling once more as well as to the chance of equities going back to higher prices.

Highlights History

 

The EDHEC IEIF Monthly Commercial Property Index (France) was developed by IEIF (Institut de l’Epargne Immobilière et Foncière) and EDHEC-Risk Institute, in collaboration with the global competitiveness centre Finance Innovation, under the patronage and with the support of La Française Group. Published since 2009, this index measures the monthly performance of an aggregate portfolio of unlisted funds, without financial leverage, representative of the performance of French commercial property.

Highlights: The EDHEC IEIF Monthly Commercial Property Index (France) price index increased by 0.5% in January after a decreased by 0.6% in December. On twelve month rolling average, the index is up by 1.6%. The total return index was up by + 6.1% year-on-year.
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Click on Total Return Index for detailed information

EDHEC IEIF Monthly Commercial Property 31-January-2019 YTD Annual Average Return since 2008 Annual Std. Dev Sharpe Ratio since 2008
Total Return Index (France) 0.51% 0.51%
6.08%
4.42%
1.18

Investors need benchmarks to evaluate the performance of hedge fund strategies, but existing hedge fund indices only give them a partial view of each investment style. Since 2003, EDHEC-Risk Institute has been publishing the EDHEC-Risk Alternative Indices, which aggregate and synthesise information from different index providers, so as to provide investors with representative benchmarks. These indices are computed for thirteen investment styles that represent typical hedge fund strategies.

 

Click on a Hedge Fund Strategy to find more information

Hedge Fund Strategies January 2019 YTD Annual Average Return since January 2001 Annual Std Dev since January 2001 Sharpe Ratio
Convertible Arbitrage
2.42%
2.42%
5.52%
6.01%
0.25
CTA Global
-0.91%
-0.91%
4.01%
7.94%
0.00
Distressed Securities
2.23%
2.23%
8.36%
5.71%
0.76
Emerging Markets
4.11%
4.11%
7.93%
9.33%
0.42
Equity Market Neutral
1.09%
1.09%
3.85%
2.66%
-0.06
Event Driven
3.32%
3.32%
6.66%
5.54%
0.48
Fixed Income Arbitrage
0.80%
0.80%
5.30%
3.63%
0.36
Global Macro
1.10%
1.10%
5.07%
4.03%
0.27
Long/Short Equity
3.87%
3.87%
5.32%
6.49%
0.20
Merger Arbitrage
1.38%
1.38%
4.78%
2.90%
0.27
Relative Value
1.78%
1.77%
5.90%
4.04%
0.47
Short Selling
-1.42%
-1.42%
-4.44%
12.98%
-0.65
Funds of Funds
2.33%
2.33%
3.29%
4.52%
-0.16

As part of its policy of transferring know-how to the industry, EDHEC-Risk Institute has set up ERI Scientific Beta. ERI Scientific Beta is an original initiative which aims to favour the adoption of the latest advances in smart beta design and implementation by the whole investment industry. Its academic origin provides the foundation for its strategy: offer, in the best economic conditions possible, the smart beta solutions that are most proven scientifically with full transparency of both the methods and the associated risks.

 

 

 

EDHEC-Risk Efficient Equity Indices

The FTSE EDHEC-Risk Efficient Index Series aims to capture equity market returns with an improved risk/reward efficiency compared to cap-weighted indices. The weighting of the portfolio of constituents achieves the highest possible return-to-risk efficiency by maximising the Sharpe ratio.

Further information is available at:

http://www.ftse.com/products/indices/EDHEC-Risk

 

FTSE EDHEC-Risk ERAFP SRI Index

The FTSE EDHEC-Risk Efficient Eurobloc ERAFP SRI Large Cap Custom Index aims to efficiently capture the performance available within an SRI screened universe of large and mid cap stocks in the Eurobloc. While the SRI screen allows addressing non-financial objectives, the efficient weighting scheme seeks to improve return-to-risk efficiency by improving portfolio diversification. While the screen relies on qualitative information on companies' SRI compliance, the weighting method uses robust estimates of a stock’s risk and return as inputs.

For further information, please contact FTSE.

ABOUT EDHECinfra

EDHECinfra was created to address the profound knowledge gap faced by infrastructure investors by collecting and standardising private investment and cash flow data and running state-of-the-art asset pricing and risk models to create the performance benchmarks that are needed for asset allocation, prudential regulation and the design of infrastructure investment solutions.

 

WHAT WE DO

Collecting and analysing data

We collect, clean and analyse the private infrastructure investment data of the project’s data contributors as well as from other sources, and input it into EDHECinfra’s unique database of infrastructure equity and debt investments and cash flows.We also develop data collection and reporting standards that can be used to make data collection more efficient and reporting more transparent. This database already covers 15 years of data and hundreds of investments and, as such, is already the largest dedicated database of infrastructure investment information available.

Designing cash flow and discount rate models

Using this extensive and growing database, we implement and continue to develop the technology developed at EDHEC-Risk Institute to model the cash flow and discount rate dynamics of private infrastructure equity and debt investments and derive a series of risk and performance measures that can actually help answer the questions that matter for investors.

Building reference portfolios of infrastructure investments

Using the performance results from our asset pricing and risk models, we can report the portfolio-level performance of groups of infrastructure equity or debt investments using categorisations (e.g. greenfield vs brownfield) that are most relevant for investors’ investment decisions.

 

 

 

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