FTSE Essay

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The FTSE Group is a company that specializes in the creation and management of asset class indices. The company was created in 1982 and is jointly owned by the London Stock Exchange (LSE) and the Financial Times (FT). The most well-known index is the FTSE 100, which is an index of shares for 100 companies listed at the LSE with the highest market capitalization.

Market indices track the performance of the assets that are included in the index, producing a statistic that should reflect the components’ aggregated performance. Indices are constructed in order to replicate a group of assets that share at least one common characteristic, which is not always based on firms’ value. So, for example, the FTSE4Good Index series is designed to track companies that meet corporate responsibility standards, including also climate change criteria. In addition, each country has its own index that tracks groups of shares with common characteristics. When FTSE was first created, the letters were an abbreviation of the two owners of the company, FT for Financial Times and SE for Stock Exchange. However, since this firm is now an independent group, this abbreviation does not apply any more. The group has partners and clients in 77 countries worldwide, and maintains and publishes more than 100,000 equity, bond, and hedge fund indices.

The firm offers tailor-made indices to its clients, however, it is mostly known for its series of structured indices. FTSE currently classifies indices in seven broad categories. First, the Global Equity Index Series covers over 8,000 assets in 48 countries, which accounts for 98 percent of the world’s market value in publicly listed companies. Apart from the Global Indices that are included in this series (e.g., FTSE All-World Index Series and FTSE Global Equity Index), the series is also divided into developed and emerging (advanced and secondary) markets’ indices. These are further subdivided in regional, national, and sector-specific indices. Recently, FTSE introduced the FTSE Shariah Global Equity Index Series that tracks the performance of assets that meet the Islamic finance requirements.

The second group of FTSE Index Series is the Regional & Partner Index series that includes indices calculated at a regional or country level across the continent. The series divides the investment world in three broad regions: Asia Pacific; Europe, Middle East, and Africa; and the United States. The flagship of FTSE indices is the FTSE 100 Index that includes the top 100 companies (measured by market value) currently trading in the LSE. The FTSE/JSE Africa Index Series and the LATIBEX Index Series reflect FTSE’s innovative character, replicating the performance of African firms and Latin American firms respectively.

The Fixed Income Index Series is designed to track the performance of fixed income assets. It is further divided into the FTSE Global Bond Index Series, which covers the fixed income markets globally, the FTSE MTIRS Index Series that replicates the performance of interest rate swaps, and the FTSE UK Gilts Index Series that specifically tracks the performance of all British government securities. Fourth, the real Estate Index Series is designed to provide benchmark prices either for global or local/regional real estate investments. The Alternative Investment Index Series is further divided into the FTSE Hedge Index Series, which tracks the performance of hedge funds, the FTSE Private Banking Index Series, which is specially designed for the private banking industry, and a series of indices that track the performance of publicly listed companies that are active in the infrastructure development industry.

The FTSE Responsible Investment Index Series comprises indices that include firms that meet the corporate and/or the environmental responsibilities’ requirements. The socially responsible investment index series has two objectives: to stimulate investments in firms that apply the corporate governance tools and to facilitate investors who are looking to invest in firms that demonstrate environmental awareness. The FTSE Investment Strategy Index Series includes a series of indices that incorporates a different methodology in calculating each company’s wealth and therefore its weight in the index. So, for example, the FTSE GWA UK Index is similar to the FTSE All-Share Index in all but the firms’ individual weight in the index.

Bibliography:

  1. Harris, Trading and Exchanges: Market Microstructure for Practitioners (Oxford University Press, 2003);
  2. Krugman, R. Wells, and K. Graddy, Economics: European Edition (Worth, 2008);
  3. Pilbeam, Finance and Financial Markets (Palgrave, 2005);
  4. Rutterford, An Introduction to the Stock Exchange Investment (Palgrave, 2007);
  5. Valdez, An Introduction to Global Financial Markets (Palgrave, 2007).

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