UK- FTSE Group has unveiled a new series of Global Style indices that comprise separate value and growth indices for 29 countries and 31 regions representing 1,800 stocks.
Style as an investment strategy, whereby the returns on value stocks and growth stocks are compared, has been popular in the US for several years, but as European fund managers are facing tougher market conditions, they too are looking for new ways in which to optimise returns on their portfolios.
Says FTSE deputy chief executive, Will Oulton: “there has been an increasing demand in Europe for style strategy. The timing is just right for the launch of growth and value benchmarks.”
The new indices (480 in total) show the clear difference between returns on value and growth-oriented companies in each country and region, such as Eurozone, Asia-pacific ex-Japan. There tends to be an direct correlation between the performances of the two asset types, so that when growth stocks outperform a country index, value stocks underperform it, and vice versa.
FTSE says fund managers using the benchmarks could therefore adjust their portfolios to match business cycles portrayed by the indices. A comparison of the global growth and value indices at present illustrates the current business climate to favour value stocks.
FTSE has been looking at the problem of producing the new index series with a team of style experts for the past 18 months, and latterly worked alongside Nomura and Style research in determining where on a scale of 100% growth to 100% value to place individual companies.
The position of these stocks on the scale will be reviewed every six months as growth stocks often evolve into value stocks when the market becomes saturated and as a company matures.
This overall style ranking for each company is achieved by looking at nine factors such as price/cash flow, dividend yield, sales growth rate and return on equity.
The indices will be launched 4th October 2002, when a back history from 1994 will also be available.