Indexing Developments
By Journal of Indexes Staff

For FTSE, Indexing Is Fundamental

FTSE announced plans on July 18 to unveil a new suite of indexes that it hopes will revolutionize the U.S. indexing industry. Working with Rob Arnott, chairman of Research Affiliates, FTSE said it would roll out two new indexes this Fall offering fundamentally screened exposure to the U.S. and global equity markets. Rather than sorting those markets by the usual capitalization methodologies, the new indexes will rely on fundamental statistics like sales, cash flow, book value and dividends.

"Cap weighted indexes overweight over-valued companies and underweight under-valued companies," said Arnott. "We have found that fundamental weighted indexes, on average, have outperformed the well-known cap weighted indexes in the U.S. by some 200 basis points a year. In international applications, the benefit surpasses 300 basis points, on average."

FTSE will aggressively license the indexes for investable products, and some investment advisors are already waiting.

"CalPERS is intrigued by the concept of fundamental index construction," said a spokesperson for the massive California public workers pension fund. "We will be examining this innovative idea closely."

The indexes will cover the U.S. and ex-U.S. opportunity sets. The indexes share much in common with the "enhanced" Intellidex indexes from the Amex, which form the basis of a family of ETFs from Powershares Capital Management.

Russell Rebalancing Follows Plan

The annual Russell rebalancing went off smoothly this year.

"Throughout the year the markets gave us a low spread in terms of index returns and sector performance, making this year's reconstitution somewhat uneventful compared to years when we see dramatic shifts in values or prices," says Lori Richards, senior product manager for Russell.

The uneventful rebalancing was helped by Russell's decision in September 2004 to add initial public offerings (IPOs) to its indexes on a quarterly basis. In all, 131 IPOs had already entered the index by the time the rebalancing came

due-companies that would have otherwise been included in the rebalancing. As a result, the 208 companies entering the index in June were down sharply from last year's 323, and from the ten-year average of 455.

Russell Debuts Micro-Cap Index

Along with the annual rebalancing, Russell also launched a new index in June. The Russell Micro-C a p Index covers stocks ranked from 2,000 to 4,000 in Russell's investment universe, re p resenting the bottom three percent of U.S. market capitalization. BGI filed to create an ETF based on the index.

Previous Page

1  |  2  |  3  |  4

Next Page