|
Q. Why the interest in socially responsible companies?
|
|
A. Europe early on was more tuned into environmental issues and were putting pressure on corporations to react. Much less of that occurred in the US, but it occurred big time in Europe.
We have a third party that created SRI criteria for public companies and we created the index.
Actually we donate all the profits of the index to UNICEF. So we've really tried to do something different. Again this reflects some of the values of FTSE and certainly of our CEO Mark Makepeace.
We were going to do a SRI because we thought there was an opportunity there and we're business people, but because it was an SRI, we were trying to get involved in the social responsible index from a community point of view, not just a business point of view. We thought that this would be a good place for us to extend our selves and do some charity.
We've donated over half a million dollars to UNICEF. Our first pass when we did the screening on who meets the criteria for the index there were a certain number of companies 200-300 that fit. Now there are nearly thousand companies in it. We have not loosened our criteria, in fact we've tightened our criteria but what surprised FTSE was the number of companies that approached us and said we want to be in this index. We actually have 2 people who are dedicated to talking to companies and explaining the criteria, telling them what process or what processes they need inside their organization in order for us to say yes, we understand the criteria.
Now that more and companies are meeting the criteria, we're able to merchandise the index. We just released the Japanese FTSE4Good index and Nomura is seriously interested in using it as a benchmark. Japan and Europe have been the leaders in putting the money against it. Luckily for us, what we are observing is that the returns on some of theses SRI indices are pretty close to and in some cases are better than the returns on standard indices. There's a comfort, especially in the US of investors putting some of their money in SRIs.
But as the returns look better, its going to be interesting, we are going to overlay a Socially responsible company with our governance information and see if there a positive correlation between companies that meet the criteria for SRIs with good governance companies. Can I now put together a package that say here are the SRI companies that are good and by the way, I'll take a slice of that and also the best governance companies? Now you've got some interesting dynamics. It may bring you comfort that now you getting better returns from companies who are handling the environment right, handling their employees right, have the right governance. We are in early stages and looking at where we go with this.
FTSE was forced to be creative, to go back to the market place and try out some ideas and thoughts that would really work.
|
|
Q. What other areas where you see niche opportunities?
|
|
A. Other areas of opportunities are hedge fund investing, FTSE-Xinhua and global small caps. Our partnership with Xinhua has positioned us as the leading index provider in Mainland China. We were the first index to have pure Mainland China Companies in the index. Everyone else is mixed and matched.
Products in London and Hong Kong will follow our recent launch of the ETF on the NYSE.
Also FTSE has anticipated industry needs by providing the FTSE Hedge and FTSE Global
Small Caps, which offer the performance badly needed by investors with a disciplined and
transparent methodology.
|
|
Q. How about Gold and commodities?
|
|
A. We hear about interest in different commodities. People who are interested in creating a commodities approach us pretty regularly and they want us to index it for them. We hear the demand from ETF world where they want a commodity ETF. We'd rather round out our positioning in Bonds, their global bonds like the UK Yields, Lehman has done a very good job in creating global bonds here in the US.
|
Q. Some consultants (QED International and ETF International) have observed that
We are in the Third generation of index evolution. The first being the creation of benchmarks to measure the direction of the equity markets the most widely known being the Dow Jones Industrial Average, S&P 500, FTSE 100 and Nikkei 225. All of these have different rule construction.
In the late 1980s, we saw the rise of style indexes like BARRA Growth and Value. With the increase interest in ETFs, there is a lot of talk about investable indexes and quantitative investment styles and methodologies being packaged as indexes (i.e.Mergent Dividend Achievers, AMEX’s Intellidexes). Do you see this as part of a trend to active index investing?
|
|
A. Indices that break away from the traditional plain vanilla benchmarks are offering investors a new way to invest and index providers like FTSE are responding quickly to the dynamics of the market and new economic scenarios.
That is way FTSE calculates more than 600 custom benchmarks to meet investors needs and requirements.
|
|
Q. Is the same trend happening in other parts of the world?
|
|
A. The U.S. is one step ahead of Europe and Asia and is setting the pace to other regions of the world.
|
|
Q. A number of new entities have entered the index publishing business since 2000
such as Cohen and Steers, ISE, iBoxx, and Mergent. Others such as the Euronext Paris, Goldman Sachs and the NYSE have revamped their index line and introduced new benchmarks. Is the index business growing rapidly?
|
|
A. We believe that the index business will continue to grow as long as the financial world continues to
evolve. Opportunities to benchmark into different and new asset classes are growing. As the financial requirements change new and hybrid indexes will grow.
|
|
Q. Is the index business becoming more competitive and does the ability to
Securitize asset classes such as bonds and commodities into new investment vehicles allowing new publishers to enter the fray?
|
|
A. FTSE has emerged as an innovative international index provider that evolved from equities (country, regional, style and size), into fixed income, into hedge and now corporate governance not to mention theme indices like gold mines, Islamic and social responsible investment indices.
|
|
Q. What do you see occurring in the market in the next 5 to 10 years?
|
|
A. More custom indices and large families of “active managed” indexes based on asset classes. Ten years ago, people barely knew about indexes. Now I think more people, especially the younger generation is willing to take more responsibility in managing their assets. Index companies are not only going to have to be smarter but technically proficient. That’s were I see the industry going and the smart ones will be investing in technology.
|
|
Q. Do you expect consolidation at some point?
|
|
A. It is mixed. Consolidation is occurring with some larger players such as Wilshire to DJ and
Citicorp Indexes to S&P. Meanwhile niche players and exchanges continue to create products.
|
|
Q. What would you do if you were not an index publisher?
|
|
A. I would be a fisherman. |
