Parala SOL Indices—delivering optimal performance
SOL offers a novel approach exceeding traditional indices in performance and customization
Unleashing the potential of indices:
SOL indices consistently outperform cap-weighted and equal-weighted indices in risk-adjusted returns
SOL offers index customization to fit unique investment policies, including ESG requirements and risk factor management.
SOL supports various investment objectives, like Sharpe ratio maximization, variance reduction, information ratio optimization, or tracking error control
How SOL Creates More Optimal Indices
SOL streamlines optimization by repeatedly selecting and optimizing small security subsets from a large universe
Tens of thousands of iterations produce subsets, later recombined to form the index with optimal security weights
SOL's effectiveness lies in:
Minimized estimation error due to fewer securities per subset
Each independent subset allows for equal-weight recombination, enhancing diversification and reducing estimation error further
Each security, optimized in thousands of combinations, ensures an index with optimal relative weights
As a result, SOL indices are:
Highly diversified and avoid overconcentration in few securities
Stable, as small assumptions changes do not lead to significantly different outcomes
Likely to yield better risk-adjusted returns due to optimal security weights
Does SOL represent a better optimizer or is it an index methodology?
SOL reconciles the traditional disconnect between optimization and indexation
Unlike typical indices, which proportionally adjust security weights, optimized indices need re-optimization for any security addition or removal
SOL, like conventional indices, permits proportional weight adjustment for any selected security subset
This allows investors to build portfolios for optimal risk-adjusted return through pro rata asset reweighting
Investors can therefore easily create specialized indices (like ESG or Quality) by screening securities that meet their criteria with each specialized index representing the optimal combination of securities held
Even on a more granular basis, Investors can select a customized stock basket from the Master Index based on criteria like carbon footprint, style factor bias, or sector preferences
Creating optimized custom indices and portfolios
SOL Solution to Custom Indexing
Summary
Custom indexation
The advent of technology and more sophisticated requirements by investors, give investors access to more optimal index solutions
SOL Indices
Parala has developed a capability for creating custom indexation strategies that combine expected outperformance with delivering specific investor requirements
Flexible, scalable and precise
The index creation process allows full flexibility in delivering a whole range of investor specified outcomes with a high degree of precision and scale
Explore the links below to the Solactive website with interactive performance charts:
Parala’s Sol Indices are operated and calculated by Solactive in an independent capacity.