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IPE special report May 2018

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FTSE rolls out Global Sector Index Series

Index provider FTSE has gone live with its new Global Sector Index Series - eleven blue-chip, global sector indices designed for sector-based trading and supporting a variety of OTC and listed products and, eventually, ETFs and derivatives.

The indices include at least 90% of each sector by market capitalisation and will be calculated on a real-time basis.
Companies are weighted by free float according to the FTSE band mechanism and the indices will be readjusted twice a year, except in the case of corporate action when they will be changed accordingly.

Says FTSE chief executive Mark Makepeace: “ These products are truly global in terms of market reach, customer base and product availability. The continuing shift towards sector-based investment is driving the demand for tradable global sector indices.”

FTSE says the new indices offer maximum tradability with minimum turnover. The indices will each include either thirty, forty or fifty companies. Where there’s a concentration in the sector FTSE has capped the large stocks at a maximum of 10%.

“The way we have designed the index in terms of changes, particularly with our free float banding, means that turnover in stocks, the cost of managing and holding this basket of underlying stocks is very low,” says Makepeace.

Initially, the indices will cover the eleven most popular sectors of the thirty-nine listed by FTSE including the banking sector, financials, media, technology and telecoms. Others such as the Global basic industries index cover as many as five or six FTSE categories and Makepeace says the package of eleven represents around 85% of the market.

Investment bank Merrill Lynch is at the same time launching a range of OTC and listed products including warrants, certificates, notes and funds on the indices. “FTSE has created a unique set of global benchmarks to help investors track the world’s most liquid sectors,” says Merrill’s Isolde Regensburger.

The launch coincides with an announcement by Dow Jones about its Sector Titans series, eighteen sector-based indices that will be in circulation by the end of the first quarter. Morgan Stanley Capital International (MSCI) is also set to launch a series of sector-based indices, calculated real time, some time this month.

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