FTSE Russell, the global index, data and analytics provider, has introduced FTSE Target Exposure indexes. The new indexes allow users to achieve explicit exposure objectives from risk factors, industries and countries, to sustainable investment goals….
New FTSE Russell Target Exposure Indexes are designed to meet investor demand for greater control and transparency of portfolio exposures over time
Indexes are available for FTSE All-World and Russell 1000, amongst others
LGIM among first to deploy a FTSE Target Exposure Index on behalf of a UK based pension fund
Investors are increasingly looking for enhanced alignment between exposures and investment objectives
The new FTSE Russell indexes provide precise alignment between investment exposures and investment objectives. They allow investors to precisely calibrate exposure to common risk factors such as Value, Quality, Low Volatility, Size and Momentum as well as industry and country classifications.
Sustainable investing portfolio objectives such as the United Nations’ Sustainable Development Goals (SDGs) may also be incorporated. The precise control of exposures, including the removal of un-wanted factor exposures, permits greater control over index tracking error.
The launch represents a natural evolution of FTSE Russell’s factor framework by applying variable factor tilts over time to account for the changing attributes of stocks. Crucially, the indexes maintain the high levels of transparency associated with the FTSE Global Factor Index Series.
The FTSE Russell Target Exposure methodology has already been employed by a UK based defined benefit pension fund, with LGIM serving as the asset manager. The scheme moved its entire equity allocation to a multi-factor strategy that could limit draw-downs, apply specific risk parameters and control for the risks of unintended factors.
Andrew Dougan, Director, Research & Analytics, FTSE Russell said:
“As assets tracking single and multi- factor indexes continue to grow rapidly, so too has the appetite for benchmarks designed to precisely meet specific investment objectives through efficient factor allocation over time. FTSE Russell’s new Target Exposure indexes, now available on some of our most widely followed flagship products like the FTSE All-World, is the natural evolution of our factor framework and tilt methodology, increasing choice for customers”.
Dr Fadi Zaher, Head of Index Research & Development, LGIM said:
“The Target Exposure indexes are an innovative solution to the challenges posed by unintended factor exposure in portfolios, which we at LGIM haves tudied extensively. The new indices represent the next generation of factor investing through an efficient, simple, and transparent methodology. We are delighted that a Defined Benefit pension scheme has chosen this defensive factor index as a solution.”
Factor based investing, often referred to as ‘smart beta’ is growing significantly. FTSE Russell’s 2019 annual smart beta survey found that 58% of institutional investors surveyed have implemented smart beta strategies, up 10% from 2018. Notably, it also found that nearly eight in 10 (78%) asset owners have implemented, are evaluating or plan to evaluate a smart beta index-based strategy.