This is fascinating. Since you don't have any info at all on the site (at least not without signing up), a few questions:
- Since it's not just for designing the indexes but actually investing them... how? Do you link to a Robin Hood API or something? What trading platforms do you integrate with?
- Obviously a huge part of an index is maintaining desired weightings/criteria, which involves buying and selling shares in order to preserve them. How often do you perform this rebalancing? Daily? Monthly? The very moment a certain "max" threshold is crossed to restore it to a "desired" value? Over a max threshold for some amount of time?
- If I have a particularly "active" index with lots of rebalancing, am I going to get hit with tons of short-term capital gains even though I'm holding the index long-term?
And finally, what happens if automated rebalancing produces a serious money-losing bug? Are investors using your platform at their own risk?
"Obviously a huge part of an index is maintaining desired weightings"
Actually it's not. Suppose I have an index that should contain AAPL and TSLA weighted by market cap, with total value $100,000. Say they both have 1000 shares in existence, and on Monday their prices are $100 and $300 respectively. Then my index will consist of $25,000 = 250 shares in AAPL and $75,000 = 250 shares in TSLA.
Now suppose on Tuesday the price of TSLA has increased to $700, so my index should be 1/8 AAPL and 7/8 TSLA. It's tempting to think this means I have to rebalance by selling AAPL/buying TLSA. But that's not right! I have 250 AAPL shares which are still worth $25,000, and 250 TSLA shares which are now worth $175,000. So I'm already at the desired 1:8 ratio.
If you're weighting purely by market cap then it's not very important, as you describe. (Accounting for newly issued shares is the only issue, but is often minor enough it can just be ignored.)
But if you're weighting by sector, for example, then it's hugely important, no? Indeed basically any weighting strategy except market cap requires rebalancing as a primary concern.
- Since it's not just for designing the indexes but actually investing them... how? Do you link to a Robin Hood API or something? What trading platforms do you integrate with?
- Obviously a huge part of an index is maintaining desired weightings/criteria, which involves buying and selling shares in order to preserve them. How often do you perform this rebalancing? Daily? Monthly? The very moment a certain "max" threshold is crossed to restore it to a "desired" value? Over a max threshold for some amount of time?
- If I have a particularly "active" index with lots of rebalancing, am I going to get hit with tons of short-term capital gains even though I'm holding the index long-term?
And finally, what happens if automated rebalancing produces a serious money-losing bug? Are investors using your platform at their own risk?