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Research & Insights

Managing the Transition with FTSE Global China A Inclusion Indexes

On May 26, 2015, FTSE Russell introduced the FTSE Global China A Inclusion Indexes as a transitional tool in preparation for the potential inclusion of China A-shares in its widely followed global benchmarks. These indexes were designed in response to the gradual liberalization of the Chinese capital markets, as evidenced by the growth of the QFII and RQFII schemes and the introduction of the Shanghai-Hong Kong Stock Connect program.

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Multifactor Indexes: The Power of Tilting

It wasn’t too long ago that the concept of factors in investing was the exclusive province of professors of finance and a few active “quant” managers. Mainstream portfolio construction was focused primarily on asset allocation. Within equities, that meant achieving the right balance in allocation to various segments such as large cap and small cap, country and sector, and perhaps value and growth style.

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Styles vs. Factors: What they are, how they’re similar/different and how they fit within portfolios

  • Traditional style indexes – such as growth and value, large and small cap – are designed to represent broad market segments based on investment styles and sets of characteristics that are focused on by professional investment managers, making them excellent benchmarks for evaluating the skill of active managers.
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Russell/Nomura Japan Equity Indexes: 20 years of excellence

In 1995, Nomura Research Institute and Frank Russell Company’s index group partnered to create the Russell/Nomura Japan Equity Indexes (RNJEI) as benchmarks for the Japanese equity market. The year 2015 marks the 20th anniversary of the creation of the RNJEI series and provides a good opportunity to evaluate the effectiveness of the indexes.

The RNJEI series was created to accomplish several objectives:1

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Inflation-linked bonds

What are inflation-linked bonds?

Inflation-linked bonds are bonds whose interest payments and principal (the payment made by the issuer at maturity) are linked to an index of inflation.

By contrast, the interest payments and principal value of conventional bonds are fixed in nominal (money) terms.

Investors in inflation-linked bonds

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Redrawing the equity map with global small caps

The earth is flat . . . or so it was believed, until sometime after 500 B.C.1 Until then, explorers dared not venture too far, for fear of reaching the physical limits of the planet and . . . falling off. It’s easy to imagine how constrained the world must have seemed to those who held this view. Equity indexing, too, has had its own “flat earth” period, when the global opportunity set seemed to be limited to the largest stocks from a select number of large countries.

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The objectives of factor indexes

What are factors?

In finance and investment theory, factors are variables that drive equity returns. In recent decades there has been great interest in identifying factors that help explain equities’ behavior, and factor research has been actively pursued across other asset classes, such as fixed income and currencies.

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Currency questions for global investors

Recent volatility in the value of the euro, Swiss franc and Japanese yen suggest that risk in global currency markets may be on the rise. The currency market is the world’s largest financial market and, with the ongoing globalization of portfolio exposures, is becoming an increasingly important component of investors’ returns. However, if investors share their currency exposures with those implicit in their equity, fixed income or other benchmarks, they may be setting their currency policy unconsciously, rather than consciously.

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Achieving factor exposure

An equity factor index is intended to offer controlled exposure to a factor or factors. But how does it achieve this goal in practice? There are a number of conceptual and design steps involved in the creation of an equity factor index and in this paper we explore these decisions.

Long/short and long-only factor indexes

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