Investable index

[myriam2222]

Dear all,
I am a bit confused by a statement about commodity indices in the CFAI material saying “all of these indices are considered investable”.
My understanding was that indices were not instruments but simply a measure of value from which you can deduct some return and that such return could be achieved by replicating the components of the index.
I thought it was clear to me by now…
So what is an investable index? Does it just mean that the securities within this index are considered sufficiently liquid and free of other regulatory investment constraints for the investor to replicate this index in a satisfactory manner? Or does it mean that vehicles exist that already replicate these indexes so that you don’t have to do it yourself but simply invest in the vehicle? Or i am getting it all wrong here?
Thanks!

 

[Galli]

myriam2222 wrote:So what is an investable index?

An investable index is something you can EASILY replicate through normal investment channels.
An example of an investable commoditity index is the CMCI commoditity index. If you follow the link below, you can see a weighted list of future’s products they invest into. You could easily reproduce this index by buying the same % of each future’s product as in the index. Scale nor size is required
http://www.bloombergindexes.com/content/uploads/sites/3/2013/05/CMCI-Com...
An example of a non-investable index is some sort of hedge-fund performance index. It’s not possible to replicate the index since you are very unlikely, or couldn’t easily, invest in all the hedge-funds within the index. Even if you could invest in all of the hedge funds it would be nearly impossible to create the exact weighting for each hedge fund investment.

 

[myriam2222]

Ok, straightforward, thanks!