I’ve been having a discussion with a colleague on the topic of index data. I suspect that many asset managers don’t give these statistics much thought, simply taking in whatever values they’re given by their data providers. But should they?
Many performance measurement professionals recognize that there can be problems with index data. Some managers track the constituents themselves and identify problems when they occur. In some cases they reach out to the index provider and alert them. But do the vendors correct the problems? Sometimes, yes; but not always.
Given that indexes play an important role in performance measurement (for example, we use them in attribution, in client reporting, and in our GIPS(R) (Global Investment Performance Standards) presentations), should we be paying them more attention? Or, do we think that (a) the errors are immaterial or (b) that over time they’ll work themselves out?