Looking for the right index fund? Team diversity matters

How hard can it be to manage an index fund? After all, the fund’s holdings and their respective weightings are determined primarily by an index, not a manager.

Actually, it is hard. Managing an index fund requires complex investment decisions on a daily basis. What’s more, strong index fund management teams tap into their diversity to navigate these complex decisions.

This makes sense. A hallmark of a broad market index fund is that it offers extensive investment diversification. Distinct perspectives enhance a team’s overall insight into the variety of securities and sectors of an index fund.

The index investment teams of iShares are built on diversity. iShares, which is a part of BlackRock, has more than 150 index fund managers in countries across North America, Europe, Asia and Latin America. That number includes women and men from different cultures and backgrounds, bringing a variety of perspectives to the investment conversation.

But, let’s hear from the experts themselves. iShares index fund managers Amy Whitelaw, Mariela Jobson and Diane Hsiung sat down for a roundtable discussion on how they use diversity on their team to pursue the index fund outcomes that their investors seek.

How does team diversity create better investment outcomes?

Amy: When we talk about diversity, it’s also diversity of backgrounds, including education and career tracks. So, if you look across my portfolio management team, you have folks who have had a range of experiences that don’t necessarily relate to index fund management directly, including accounting and client transition management.

The diverse skill sets and thought processes required by each of those roles are very valuable in finding solutions to problems. For example, when we are trading in the market, we need to understand: Where are the costs and risks going to come from?

So having these discrete and different backgrounds can help reduce risk and the cost when we’re transitioning or rebalancing portfolios. It translates directly into that tight tracking against the index that our funds seek to achieve.

Mariela: When we hire new people, that’s what we look for: To make sure that we are diversified not only across, say, gender or ethnicity, but also backgrounds, because that can further add to diversity of thought.

What is the connection between team diversity and the client?

Mariela: What’s unique about the team approach is that we’re able to identify each member’s individual strength. These strengths can offset weaknesses in each other and be combined to bring a diverse perspective. This helps us manage portfolios in the best interest of our client.

Amy: It takes a village, it really does, to achieve the index investment outcomes that we do day in and day out, like pursuing tight tracking to the fund’s index benchmark. We’re not here for ourselves. We’re very much a part of the team to help deliver these results to our clients. And I think that puts the client at the center of what we’re doing.

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source https://www.blackrockblog.com/2017/12/12/index-fund-team-diversity/