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Research & Insights

Managing the Transition with FTSE Global China A Inclusion Indexes

On May 26, 2015, FTSE Russell introduced the FTSE Global China A Inclusion Indexes as a transitional tool in preparation for the potential inclusion of China A-shares in its widely followed global benchmarks. These indexes were designed in response to the gradual liberalization of the Chinese capital markets, as evidenced by the growth of the QFII and RQFII schemes and the introduction of the Shanghai-Hong Kong Stock Connect program.

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Styles vs. Factors: What they are, how they’re similar/different and how they fit within portfolios

  • Traditional style indexes – such as growth and value, large and small cap – are designed to represent broad market segments based on investment styles and sets of characteristics that are focused on by professional investment managers, making them excellent benchmarks for evaluating the skill of active managers.
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Russell/Nomura Japan Equity Indexes: 20 years of excellence

In 1995, Nomura Research Institute and Frank Russell Company’s index group partnered to create the Russell/Nomura Japan Equity Indexes (RNJEI) as benchmarks for the Japanese equity market. The year 2015 marks the 20th anniversary of the creation of the RNJEI series and provides a good opportunity to evaluate the effectiveness of the indexes.

The RNJEI series was created to accomplish several objectives:1

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Inflation-linked bonds

What are inflation-linked bonds?

Inflation-linked bonds are bonds whose interest payments and principal (the payment made by the issuer at maturity) are linked to an index of inflation.

By contrast, the interest payments and principal value of conventional bonds are fixed in nominal (money) terms.

Investors in inflation-linked bonds

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The objectives of factor indexes

What are factors?

In finance and investment theory, factors are variables that drive equity returns. In recent decades there has been great interest in identifying factors that help explain equities’ behavior, and factor research has been actively pursued across other asset classes, such as fixed income and currencies.

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Currency questions for global investors

Recent volatility in the value of the euro, Swiss franc and Japanese yen suggest that risk in global currency markets may be on the rise. The currency market is the world’s largest financial market and, with the ongoing globalization of portfolio exposures, is becoming an increasingly important component of investors’ returns. However, if investors share their currency exposures with those implicit in their equity, fixed income or other benchmarks, they may be setting their currency policy unconsciously, rather than consciously.

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Achieving factor exposure

An equity factor index is intended to offer controlled exposure to a factor or factors. But how does it achieve this goal in practice? There are a number of conceptual and design steps involved in the creation of an equity factor index and in this paper we explore these decisions.

Long/short and long-only factor indexes

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Factor exposures of smart beta indexes

Capitalisation weighted indexes are considered to be representative of the broad market opportunity set and are characterised by high levels of liquidity, investment capacity and relatively low levels of turnover. However, concentration risks that may arise during market bubbles and the inherent factor traits of capitalisation weighted indexes have prompted alternative approaches to index construction, with the resulting indexes commonly referred to as “smart beta”. Smart beta indexes encompass both alternatively weighted and factor indexes.

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Low Volatility or Minimum Variance: An "eyes wide open" discussion

An investor can face a dilemma when looking for assistance in building an investment portfolio. Myriad sources offer advice, often rendering the decisions to be made difficult at best. Soldiering on with the advice and reading through literature, the investor will fairly soon come across a discussion on volatility, as reducing portfolio volatility has been a notable recent theme. Reading on, the investor will shortly realize that although sometimes considered together as “low volatility” strategies, the two most commonly-stated strategies for volatility are very different.

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