GLOBAL - New entrant to the indices market Thomson Reuters is in the process of developing benchmarks to help European and Asian institutional investors reduce volatility in their portfolios.
"While consultants and plan sponsors certainly remain interested in benchmarks, the banks want structured products, which is the reason why we are working on volatility indices," said Andrew Clark, chief index strategist at Thomson Reuters.
"Everyone wants to sell away volatility, nobody wants to go through 2007 and 2008 again where volatility was sky-high. But selling it away has always been very difficult unless the investor dealt in various option strategies, and those were primarily on individual stocks," he added.
Thomson Reuters is working on indices which should enable investors to sell away the realised volatility, rather than the implied volatility, on stocks and indices.
Clark admitted, however, that in a regional or global bull market the appetite for selling volatility will probably decline again to some extent.
"What happens at those points is that people will tend to buy," he added. "But we hope that this is a two-way street because investors are willing to take on more risk as the markets are going up and this is a way of doing so."
On the benchmark side, Clark said investors are showing interested in enhanced beta indices, as well as regional or themed ones such as Islamic indices.
Reuters Thomson only moved into the index business in September following demand from clients. But it now has ambitious plans to cover more countries than any other index provider on the back of the data it acquires from 130 exchanges.
By the end of this year, Reuters Thomson expects to offer 7,000-10,000 indices. The number is then anticipated to multiply by three through the creation of small, mid and large caps from within those, and will again be multiplied with the introduction of core, growth and value-styles indices. The data provider hopes to match its competitors' offerings with around 60,000 indices by June 2010. The plan is to produce equally-weighted indices following the same schema during the second half of 2010 or 2011 and to cover all 130 countries with indices behind them.
These developments are being unveiled just as Thomson Reuters today announced it had acquired ASSET4, the provider of environmental, social responsibility and governance (ESG) tools and information. Of the US$55trn (€36.6trn) in global equities market, approximately $5trn in assets is already screened for a variety of ESG issues. This figure is expected to increase as mandated and voluntary disclosure is set to increase.
The deal will see Thomson Reuters offer ESG information, to assist investors wanting to engage with companies, improve investment performance, reduce risk and lower research costs.
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