Thomson Reuters Lipper Optimal Indices
Measure the full spectrum of risk and return
Thomson Reuters Lipper Optimal Target Risk Indices are a set of five, asset allocation-oriented indices designed to assess the trade-off between risk and return in diversified portfolios. The five Target Risk Optimal Indices ---Aggressive Growth, Growth, Moderate, Conservative and Very Conservative---are "optimized" and build on modern portfolio theory to depict the best investment outcome for various levels of risk. Optimal Target Risk Indices can be used singly or in conjunction with other indices as benchmarks for individual investor portfolios, performance benchmarks for target risk or as the basis for wealth management.
Gaining an understanding of the correlation between risk and return is critical for all investors, particularly those who are planning for retirement. Asset allocation products focused on helping baby boomers achieve a secure future are among the fastest growing segments of the fund industry.
Thomson Reuters Lipper Optimal Target Risk Indices are objective, risk-based tools composed of carefully selected exchange-traded funds (ETFs) whose historical returns, correlations, liquidity, and expenses are analyzed in an effort to identify the appropriate mix for five levels of progressively increasing risk and return benchmarks.
Optimal Target Risk Indices and Asset Allocation
Thomson Reuters Lipper Optimal Target Risk Indices were constructed using Modern Portfolio Theory, and are analytical tools which can be used to monitor how well a given asset allocation product manages the relationship between investment risk and return.
The idea for Thomson Reuters Lipper Optimal Target Risk Indices originated with the concept that investors try to create "optimal" portfolios in one of two ways:
- For any level of risk, among a range of available assets, investors consider which of those assets has the same risk and select the one with highest expected return.
- For any expected return, among a range of available assets, investors consider which of those assets has the same return and select the one with the lowest risk.
