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Indexing Pension Funds with Exchange-Traded Funds

Author

Listed:
  • Maria Alcina Rodrigues Batista Sanfins

    (FAPES / BNDES)

  • Antonio Marcos Duarte Júnior

    (UERJ & Ibmec/RJ)

Abstract

This article considers the use of Exchange-Traded Funds (ETFs) for indexing the portfolios of pension funds in Brazil. A methodology is proposed to allow the portfolio managers to combine ETFs and the assets composing its benchmark. The methodology is based on a mathematical programming model, with the resulting problem solved by any global optimization algorithm. The results obtained for two ETFs – BOVA11 (indexed to the Ibovespa) and BRAX11 (indexed to the IBrX-100) – are presented for illustrative purposes. All constraints imposed by the Brazilian regulatory environment have been incorporated in the studies presented. The methodology proved to be an interesting alternative to pension fund managers, with good results with respect to the control of tracking errors.

Suggested Citation

  • Maria Alcina Rodrigues Batista Sanfins & Antonio Marcos Duarte Júnior, 2014. "Indexing Pension Funds with Exchange-Traded Funds," Brazilian Review of Finance, Brazilian Society of Finance, vol. 12(2), pages 201-227.
    • Handle: RePEc:brf:journl:v:12:y:2014:i:2:p:201-227
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    More about this item

    Keywords

    Exchange Traded Funds; Passive Management; Indexing; Tracking Errors;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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