Index awareness is at an all time high

Penny Ning Pan, Director, Product Management, FTSE Russell
Penny Ning Pan, Director, Product Management, FTSE Russell
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While the majority of readers will be familiar with the FTSE 100 and FTSE 250, the UK indexes that chart the performance of some of the largest companies listed on London Stock Exchange, you may not be aware that FTSE Russell, part of London Stock Exchange Group, calculates tens of thousands of equity and bond indexes both in the UK and around the world.

Currently over $16 trillion of assets are benchmarked to FTSE Russell indexes.

Simply put, an index is a measurement tool tracking the value and performance of a collection, or basket, of securities. The indexes then track the performance of that particular basket, be it an asset class such as equities, bonds or commodities or even a specific region or country.

Increasingly indexes are being used by investors to issue passive investment products, such as Exchange Traded Funds (ETFs), as well as a general measure of a fund manager’s performance. Last but not least, as investors increasingly diversify their investments internationally and across asset classes, multi-asset indexes have emerged as tools for measuring the performance of, or as the basis for constructing, multi-asset portfolios.

One such index series designed specifically for private investors and trustees is the FTSE Private Investor Index Series. Initially launched in 1997, it is a multi-asset index series for the UK’s wealth management industry, providing benchmarks for multi-asset portfolios of various risk tolerance levels, such as conservative, or growth oriented. The index series covers equities, bonds, cash,

property and other investments.

Over time the FTSE Private Investor Index Series has evolved to respond to customer demand and industry trends. Earlier this year, following a market consultation, the index series was further enhanced to meet the evolving needs of private investors and UK wealth managers.

Building on its 20-year track record, FTSE added a further two indexes to the Private Investor Index Series in April 2018, bringing the total number to seven. The addition of the FTSE UK Private Investor Ultra Conservative Index and FTSE UK Private Ultra Growth Index, offer a more complete product spectrum across investor risk profiles.

An important feature of the FTSE Private Investor Index Series is that it uses real world average asset allocation snapshots to determine asset allocations. In the past, peer group surveys were used to determine the indexes’ asset allocation levels. With the recent enhancement, FTSE Russell has chosen a more data driven and robust approach with the allocation levels now derived from actual funds’ data from Morningstar’s Direct Fund Database.

The Morningstar database contains asset allocation information for a broad set of asset allocation funds, equity funds and fixed income funds that are authorised for sale to UK investors. As a result of this enhancement, the asset allocation levels for the FTSE Private Investor Index Series are more transparent and representative of the market.

Asset classes in the indexes have also been expanded to cover not only UK equities, international equities, UK government bonds, but also UK corporate bonds and international bonds, in addition to property and other investments. This is testament to FTSE Russell’s multi-asset capabilities.

This expansion is underpinned by FTSE Russell’s recent acquisition of The Yield Book Inc. and Citigroup Index LLC, both leading providers of fixed income indexes and analytics globally. It is a significant step in our commitment to provide multi-asset solutions for our customers, including in the wealth management sector.

Public awareness of indexes and investment products is at an all time high and has become a key component of financial market infrastructure. And whilst the FTSE 100 and FTSE 250 remain the UK’s globally recognised benchmarks, our Private Investor Index Series shines a light on the breadth, depth and reach of FTSE Russell’s global offering and commitment to serve the multi-asset needs of the UK wealth management industry.