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
November 2018 Values
Zone, Retirement year
Not adjusted
Cost-of-Living-adjusted
US, 2023
13.07
16.85
US, 2028
10.97
15.62
US, 2033
9.19
14.44
US, 2038
7.70
13.36
US, 2043
6.46
12.39
US, 2048
5.44
11.51
US, 2053
4.58
10.71
US, 2058
3.86
9.96

EDHEC-Princeton Goal Price Indices
Retirement Wealth
November 2018 Values
Zone, Retirement year
Not adjusted
Cost-of-Living-adjusted
US, 2023
0.88
0.96
US, 2028
0.75
0.90
US, 2033
0.63
0.84
US, 2038
0.53
0.77
US, 2043
0.44
0.71
US, 2048
0.37
0.66
US, 2053
0.31
0.61
US, 2058
0.26
0.57

HIGHLIGHTS OCTOBER 2018

  • Yields on US government debt are still increasing, borne by good economic statistics in the US and resurging fear for inflation. The rate on 10-year Treasury bonds had risen above 3.20% on October 10, at unprecedented levels since July 2011. Rising interest rates imply lower bond prices, and the Goal Price Indices are no exception since they are similar to the prices of fixed income products;
  • All Goal Price Indices are now at lower levels than in January 2018. For instance, in January, it cost $8.85 to purchase one dollar of replacement income for 20 years beginning in 2038. In October, it cost only $8.03: this may seem a small decrease, but for an investor endowed with $100,000 of retirement savings and planning to retire in 2038, this amounts to a significant increase of $1,154 per year in replacement income;
  • In view of resurfacing expectations of high inflation, investors may consider acquiring cost-of-living-adjusted replacement income to make sure that they will be able to to sustain a standard of living, not just a nominal amount of consumption, in retirement. This month, it costs $13.98 to have $1 of October 2018 every year beginning in 2038. This is much more than (exactly, 1.74 times as high as) the $8.03 required for one dollar of income, but one must keep in mind that with a cost of living adjustment of 2% per year, $1 at the beginning of retirement in 2038 is worth $1.46 of October 2018, and $1 of 2058 is worth $2.17 of today. From 2038 to 2058, nominal replacement income is on average 1.78 times as high as without inflation adjustment, a ratio close to 1.74.

Highlights History

 

EDHEC-Princeton Goal-Based Investing Indices
Retirement Income
October 2018 Returns (%)
Zone, Retirement year
Not adjusted
Cost-of-Living-adjusted
US, 2023
-4.22
-4.28
US, 2028
-5.37
-5.40
US, 2033
-6.11
-6.11
US, 2038
-6.11
-6.11
US, 2043
-6.11
-6.11
US, 2048
-6.11
-6.11
US, 2053
-6.11
-6.11
US, 2058
-6.11
-6.11

EDHEC-Princeton Goal-Based Investing Indices
Retirement Wealth
October 2018 Returns (%)
Zone, Retirement year
Not adjusted
Cost-of-Living-adjusted
US, 2023
-3.51
-3.51
US, 2028
-4.77
-4.77
US, 2033
-6.08
-6.08
US, 2038
-6.11
-6.11
US, 2043
-6.11
-6.11
US, 2048
-6.11
-6.11
US, 2053
-6.11
-6.11
US, 2058
-6.11
-6.11

HIGHLIGHTS OCTOBER 2018

  • In each index series, the GHP replicates a Goal Price Index, so the negative returns posted by Goal Price Indices translate into equally negative returns for the various GHPs. This happened in September, with all GHPs displaying negative returns. The most negative returns are those of the GHPs with the longest duration, that is the highest exposure to interest rate risk: the GHP for retirement income starting in 2058 had a return of – 9.32%, versus – 2.54% for the 2023 GHP;
  • Equities in the PSP have displayed positive performance over the summer, with a return of 7.76% from the beginning of July to the beginning of October (7.77% for the S&P 500 with dividends reinvested), although the rise is slowing down, with a return of 0.96% in September (0.94% for the S&P 500). Since the beginning of the year, the PSP has grown by 11.10% (10.97% for the S&P 500);
  • The dynamic investment policy implemented in the Goal-Based Investing Indices commands a higher allocation to equities when the PSP outperforms the GHP, and conversely, a lower allocation when it underperforms. In view of the outperformance of the PSP with respect to the GHP over the past months, the dynamic portfolios are now mainly invested in the PSP. This is especially true for the most distant retirement dates for two reasons: first, these strategies have by design a higher allocation to equities, like standard target date funds, and second, the return spread between the PSP and the GHP is higher for these indices than for the short-maturity ones. For retirement in 2038 or after, all strategies are now fully invested in the PSP, so the September performance of these indices coincides with that of the PSP;
  • If good PSP performance were to persist in the next few months and interest rates were to rise again, the dynamic strategies would remain largely invested in the PSP until January 2019, where the allocation will be revised for all indices and will be set back to the allocation of a target date fund;
  • Recent outperformance of the PSP with respect to the GHPs has resulted in outperformance of each Goal-Based Investing Index with respect to its GHP between January 2018 and October 2018. The natural benchmark for each index is its GHP, and outperformance of the index means that an investor who would have entered the dynamic strategy would have seen an increase in the purchasing power of his/her savings in terms of replacement income or retirement wealth;
  • This recent outperformance also implies good probabilities of reaching aspirational goals, which are levels of replacement income or retirement wealth greater than 100% of the initial purchasing power. For all investors retiring in 2028 or later, the probability of increasing the initial purchasing power by 30% at least is greater than 70%. Investors who have more time to retirement and plan to retire in 2038 have more than 80% chances of seeing an increase by 50% or more.

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 decreased by 0.9% last September 2018 after a decrease by 0,2% in August. On twelve month rolling average, the index is up by 0.7% and 0,5% year-to-date. The total return index was up by 0.2% last September 2018; it is + 5.2% year-on-year and 3,8% YTD.

Click on Total Return Index for detailed information

EDHEC IEIF Monthly Commercial Property 30-September-2018 YTD Annual Average Return since 2008 Annual Std. Dev Sharpe Ratio since 2008
Total Return Index (France) 0.20% 3.75%
6.21%
4.49%
1.16

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 October 2018 YTD Annual Average Return since January 2001 Annual Std Dev since January 2001 Sharpe Ratio
Convertible Arbitrage
-0.73%
0.93%
5.57%
6.01%
0.26
CTA Global
-3.14%
-5.56%
4.13%
7.98%
0.02
Distressed Securities
-1.58%
3.04%
8.60%
5.66%
0.81
Emerging Markets
-3.15%
-9.96%
7.81%
9.34%
0.41
Equity Market Neutral
-1.29%
-1.10%
3.94%
2.61%
-0.02
Event Driven
-2.57%
-0.14%
6.75%
5.47%
0.50
Fixed Income Arbitrage
-0.23%
2.48%
5.41%
3.64%
0.39
Global Macro
-0.96%
-1.07%
5.13%
4.05%
0.28
Long/Short Equity
-4.02%
-1.86%
5.37%
6.43%
0.21
Merger Arbitrage
-0.80%
1.47%
4.71%
2.90%
0.25
Relative Value
-1.09%
0.17%
5.97%
4.04%
0.49
Short Selling
2.37%
9.78%
-4.43%
13.07%
-0.64
Funds of Funds
-2.69%
-1.66%
3.33%
4.50%
-0.15

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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