Russell’s “GeoExposure” indices target emerging markets via developed market companies

Sep 20th, 2012 | By | Category: ETF and Index News

Global index provider Russell Investments has introduced the Russell Geographic Exposure (“GeoExposure”) Index Series, a new family of indices designed to help investors gain exposure to emerging markets via developed market companies.

Russell’s new “GeoExposure” indices target emerging markets via developed companies

Russell’s new “GeoExposure” indices provide exposure to emerging markets via developed market companies such as Atlas Copco, a Swedish manufacturer with a growing share of revenue generated in emerging and frontier markets.

The new indices follow a transparent rules-based methodology to identify companies within an existing Russell developed market index that have exposure to emerging markets. Index weights are adjusted to reflect the significance of this exposure.

“Where a company is headquartered is no longer the primary factor in how it makes money. Many of today’s large multinational corporations have diverse geographic revenue streams,” said Tom Goodwin, Russell Indexes senior research director.

An example of such a multinational corporation is Atlas Copco, a Stockholm-headquarted industrial tool manufacturer which holds a top-ten weight in three of Russell’s new indices (the Russell Developed Large Cap EM GeoExposure Index, the Russell Developed ex-North America Large Cap EM GeoExposure Index and the Russell Developed Europe Large Cap EM GeoExposure Index, see below).

Atlas Copco earns its place in these indices courtesy of its significant exposure to China (the company’s largest market), India, Brazil and Russia, as well as other emerging and frontier countries in Africa, South America and the Middle East. The Swedish company’s presence in China, for example, is huge, comprising 142 sales offices, 15 production plants (primarily serving the China market) and almost five and a half thousand employees.

“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,” added Goodwin.

To ascertain what portion of a company’s exposure comes from emerging markets, Russell has aligned with data classification firm Revere Data. Revere’s analysts, who specialise in financial statement analysis, 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.

“Revere is pleased to work with Russell on this important index innovation,” said Kevin O’Brien, CEO of Revere, “particularly in a time when emerging markets exposure is becoming a more important factor in investment diversification and performance.”

The series initially consists of four indices:

Russell 1000 Emerging Markets GeoExposure Index

Russell Developed Large Cap Emerging Markets GeoExposure Index

Russell Developed Europe Large Cap Emerging Markets GeoExposure Index

Russell Developed ex-North America Large Cap Emerging Markets GeoExposure Index

While the emerging markets index set is Russell’s first application of the “GeoExposure” concept, the company has confirmed that the methodology can be applied to additional Russell Indexes and may be designed to target various regional or country exposures.

Russell’s sales team will no doubt be pitching the new indices to sponsors of exchange-traded funds (ETFs), who will surely be keen to learn more about this unique take on emerging markets.

Russell indices already form the basis of over 90 ETFs around the world, with more than $80 billion in assets under management.

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