Putting on the style
April 2008 - Does style exist outside the US equity markets? Russell Investments thinks so, and this month it is launching new Global Style Indexes. This follows the launch last year of the group’s Global equity index range. The style indexes will represent the growth and value segments of the main components of the global series.
Corinne Collie, Director of Marketing for Russell Indexes, says, “The purpose of our style indexes, and our view of style, guide how we went about extending the existing style indexes within the US and Japan to a global set of indexes.”
“Because value and growth management of global portfolios is still in a state of development, we relied not only on Russell’s research database, but also on a qualitative assessment of possible style definitions. To this end, we drew upon the expertise of Russell’s manager research analysts. These are specialists whose job is to understand the approaches of money managers in all of the major markets.”
The Russell global style indexes are driven by a view of the global equity market as essentially one large, albeit diverse, investment opportunity, rather than as a series of individual markets. Collie explains: “The indexes are intended to be used for a variety of purposes including analysis of money manager portfolios and attribution analysis, acting as a benchmark for specialist mandates and providing insight into exposures of market participants to growth or value on a global level.”
Traditionally, investors have restricted their non-domestic allocations to large cap stocks - typically only the top 50-70% by market cap. The Russell global index series is divided into large, small and all-cap segments. The value/growth definition will be applied separately to the large cap and small cap segments. The broad market global value and growth indexes will be the sum of the appropriate large and small cap parts.
“As a global investment manager, we take a different view on how to build global indexes - something we call global relative,” says Collie. “A consequence of using this approach is that individual markets and regions tend to be allocated unevenly between the global value and growth indexes. These deviations from a 50/50 allocation are reflective of the fact that it is possible for certain countries to be systematically or cyclically weighted towards one style or the other, just as it is possible for certain sectors to be.”