"Tracking EAFE with Index Futures Portfolios", Barra Newsletter, Fall 1994, p1
Topic: Investing (Investment Management) |
Asset Class: Derivatives
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With index futures covering most of the developed country markets, can an all-index futures portfolio be used to track a global benchmark? We used the Global Equity Performance system to compare two index futures portfolios against the Morgan Stanley Capital International Europe-Australia-Far East (EAFE) index. While futures-only portfolios for tracking EAFE may have several advantages over all-stock portfolios, their recent performance raises some questions concerning their ability to track EAFE. Given that the largest difference in performance stems from differences in specific asset composition between the futures indices and their respective EAFE sub-indices (rather than industry or country mis-weightings), one might raise the question as to which list of assets is "best." Certainly, the futures-only tactic can be improved by adding stocks to the portfolio to cover more countries and to diversify the within-market position. Also, the implicit currency exposures could be hedged. By knowing the portfolio characteristics and performance, a clever manager may be able to use the advantages of index futures to improve overall portfolio performance.
Publication:
Authors: BERTOLOTTI Andre
