Index investing

What is the role of index investing in your defined contribution investment menu?

Index strategies can be an appealing choice for many defined contribution (DC) plan sponsors. They offer broad, diversified market exposure at low cost, with transparent methodology that can be supported from a fiduciary perspective.

Index exposures also place a premium on asset allocation, and a thoughtful combination of active and index strategies can deliver improved risk-adjusted returns while maintaining cost efficiency. The key to unlocking these potential benefits, however, is confidence in the underlying index methodology.

BlackRock is the world’s leading index provider.* Our experience and global platform help mitigate a variety of factors that may detract from fund performance, such as cash flows in and out of the fund, rebalancing costs, and reconstitutions or corporate actions. Our goal is to provide efficient building blocks that can be used as standalone investments or within highly sophisticated multi-asset class strategies.

Considerations when selecting an index manager

When selecting an index manager, consider the following:

• Partnership and flexibility: Client service, thought leadership and pro-active communication should be an imperative.
• Experience and resources: A long track record and robust platform may help ensure due diligence and process evolution key to delivering long term performance.
• Performance with precision: Low tracking error may provide more predictable outcomes and efficient implementation of multi-asset class solutions.
• Scale and scope: Scale allows index managers to spread the fixed costs over a large base of assets, potentially reducing their drag on performance.