FTSE Group has leveraged its combined index and analytics experience to launch a series of indices aimed at delivering reduced index volatility.
The newly launched FTSE Global Minimum Variance Index Series provides investors with a broad, diversified and investable suite of portfolio incorporating a low volatility/variance objective, thereby offering potential improvements to the risk/reward trade-off versus conventional indices.
Commenting on the launch, Peter Gunthorp, Managing Director for Research & Analytics at FTSE, said: “In the current economic environment and given the nature of equity market returns in recent years, investors are increasingly interested in lower volatility investments which concentrate on improving their risk return profile whilst maintaining their allocation to global equity markets. The FTSE Global Minimum Variance Index Series will provide global investors with new product and benchmarking opportunities to meet their requirements.”
The series achieves a reduction in volatility by using a transparent rules-based approach that minimises historical variance and results in a broad index which is diversified across country, industry and stock levels.
Based on the widely adopted FTSE All-World Developed Index Series, the new index series offers an alternative to traditional market-cap-weighted approaches, whilst maintaining full allocation to the relevant equity market.
The global series follows on from the launch of the FTSE 100 Minimum Variance Index, the basis for the London-listed Ossiam ETF FTSE 100 Minimum Variance (UKMV), and includes the following indices:
FTSE Developed Minimum Variance Index
FTSE Developed Europe Minimum Variance Index
FTSE Developed Europe ex UK Minimum Variance Index
FTSE Eurobloc Minimum Variance Index
FTSE Developed Asia Pacific Minimum Variance Index
FTSE Developed Asia Pacific ex Japan Minimum Variance Index
FTSE USA Minimum Variance Index
FTSE Japan Minimum Variance Index
FTSE is not alone in offering a range minimum variance or low volatility indices. S&P Dow Jones, MSCI, Stoxx, and Russell, among others, all offer comparable products, including the S&P Low Volatility range, the MSCI Global Minimum Volatility Indices, the STOXX+ Minimum Variance index family and the Russell-Axioma range.
These indices have proved popular with investors and many form the basis for ETFs. Indeed, it is likely the this latest FTSE series will be looked at closely by ETF providers and could eventually underpin future ETF launches.
For investors looking to get exposure to such indices now, ETF providers in the US such as iShares, PowerShares and Russell all offer relevant products, while in the UK and Europe the main providers in this space are Ossiam, which offers a range of minimum variance ETFs tracking UK, European, US and emerging markets, and Lyxor, which recently launched two “equal risk contribution” ETFs providing exposure to Europe and the World, benchmarked to STOXX and MSCI indices respectively.