Russell Launches ‘GeoExposure’ Indexes
September 12, 2012
Russell Investments, one of the largest index providers in the world, today rolled out a group of indexes that serve up emerging markets exposure through portfolios comprising developed-market companies.
In what the company calls its GeoExposure Index series, Russell designed benchmarks that comprise stocks of developed-country companies that derive significant portions of their revenues from emerging economies, arguing that where a company is based no longer is crucial in determining how it makes money.
“This is a way of getting emerging markets exposure without some of the volatility and illiquidity concerns that often come with emerging markets stocks,” Tom Goodwin, Russell Indexes senior research director, told IndexUniverse.
The indexes also allow investors to access parts of emerging markets economies that aren’t represented in publicly traded equities, he added.
“A lot of these economies are in private hands, not traded on exchanges,” Goodwin said. Developed companies generating revenues through business with both public and private enterprises in emerging markets would be included in the investment universe.
The methodology relies on financial statement analysis expertise from the financial information firm Revere Data to estimate just how much of a company’s revenue stream is coming from emerging markets, Russell said.
The indexes take into account not only what percentage of a company’s revenue originates in emerging markets but also the total dollar revenue coming in from the region.
“We found that if we just focused on one of those two criteria, we could not get well-balanced indexes,” Goodwin added.
Looking at percentage terms alone would likely skew the mixes toward small and midcap names, while looking at dollar amounts alone would benefit larger players, he noted.
“By more accurately identifying what percentage of developed market company revenue comes from emerging markets and assembling an index based on this exposure, we offer an efficient way to access emerging market opportunities,” Goodwin said in a company release.
The four indexes are created from existing Russell Global Indexes and are rules-based.
Each company’s weighting in the mix is designed to reflect the significance of this exposure by taking into account the percentage of revenue, the dollar amount, and the company’s market capitalization “to eliminate size bias and make the indexes more tradable,” Goodwin said.
The series initially consists of four indexes:
Revere’s U.S.-based analysts cover more than 40,000 stocks traded on 35 global exchanges, reviewing filings, management discussions and footnotes to produce the most accurate estimate of company revenue sources obtainable, the company said.
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