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Index IDEA: Getting smart about “smart beta”

Smart beta indexes from FTSE Russell present a way for investors to measure global equity market risks and return. Smart beta indexes have provided investors with an expanded toolkit, and the FTSE Global Diversified Factor Index Series, co-developed with J.P. Morgan Asset Management, represents further innovation in indexing by capturing the insights from a leading asset manager within transparent rules based indexes.

The FTSE Global Diversified Factor Index Series is designed to capture a more even distribution of uncompensated sources of risk across regions and industries. Additionally, the indexes screen for stocks exhibiting attractive relative valuation, positive price momentum, low volatility, high quality and lower market capitalization relative to traditional market capitalization weighted indexes.  FTSE Russell recently expanded the index family with the launch of two currency hedged indexes, providing additional tools for investors who wish to manage foreign currency fluctuations.
Over the last decade, the FTSE Global Diversified Factor Indexes have produced higher hypothetical index returns than their capitalization-weighted counterparts. Year-to-date, returns have also been higher than their counterparts.  For example, the FTSE Developed ex North America Diversified Factor Indexes have outperformed their market capitalization-weighted counterparts by over 3% YTD. 

FTSE Russell Index Performance as of March 31, 2016

Source: FTSE Russell. Data as at March 31, 2016. Past performance is no guarantee of future results. Performance prior to May 2015 may represent hypothetical returns. Please see the end for important legal disclosures.

The index series, originally launched in 2014, is used by JP Morgan Asset Management as the basis for a suite of exchange traded funds.

Brad Zucker, Senior Product Manager at FTSE Russell:
“The FTSE Global Diversified Factor Index Series methodology seeks to address two potential drawbacks of traditional market cap-weighted benchmarks, namely concentration of risk and inclusion of securities based solely on market valuation.  The rules systematically apply a top-down risk framework and a bottom-up stock selection process to improve diversification and include securities exhibiting attractive factor characteristics.”

Bob Deutsch, Global Head of ETFs for J.P. Morgan Asset Management
“As volatility and currency risk continue to worry investors, clients are increasingly turning to strategic beta indexes to address the drawbacks of market cap-weighted indices. We are thrilled to expand our investment capabilities with currency-hedged ETFs, complementing our existing strategies and offering clients more choices.”


© 2016 London Stock Exchange Group plc and its applicable group undertakings (the “LSE Group”). The LSE Group includes (1) FTSE International Limited (“FTSE”), (2) Frank Russell Company (“Russell”), (3) FTSE TMX Global Debt Capital Markets Inc. and FTSE TMX Global Debt Capital Markets Limited (together, “FTSE TMX”) and (4) MTSNext Limited (“MTSNext”). All rights reserved.

FTSE Russell® is a trading name of FTSE, Russell, FTSE TMX and MTS Next Limited. “FTSE®”, “Russell®”, “FTSE Russell®” “MTS®”, “FTSE TMX®”, “FTSE4Good®” and “ICB®” and all other trademarks and service marks used herein (whether registered or unregistered) are trade marks and/or service marks owned or licensed by the applicable member of the LSE Group or their respective licensors and are owned, or used under licence, by FTSE, Russell, MTSNext, or FTSE TMX.

All information is provided for information purposes only. Every effort is made to ensure that all information given in this publication is accurate, but no responsibility or liability can be accepted by any member of the LSE Group nor their respective directors, officers, employees, partners or licensors for any errors or for any loss from use of this publication or any of the information or data contained herein.

Views expressed by Brad Zucker of FTSE Russell and Bob Deutsch of JP Morgan Asset Management  are as of March 31st and subject to change. These views do not necessarily reflect the opinion of FTSE Russell or the London Stock Exchange Group.

No member of the LSE Group nor their respective directors, officers, employees, partners or licensors make any claim, prediction, warranty or representation whatsoever, expressly or impliedly, either as to the results to be obtained from the use of the FTSE Global Diversified Factor Index Series or the fitness or suitability of the indexes for any particular purpose to which they might be put.

No member of the LSE Group nor their respective directors, officers, employees, partners or licensors provide investment advice and nothing in this IDEA should be taken as constituting financial or investment advice. No member of the LSE Group nor their respective directors, officers, employees, partners or licensors make any representation regarding the advisability of investing in any asset. A decision to invest in any such asset should not be made in reliance on any information herein. Indexes cannot be invested in directly. Inclusion of an asset in an index is not a recommendation to buy, sell or hold that asset. The general information contained in this publication should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional.

No part of this information may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior written permission of the applicable member of the LSE Group. Use and distribution of the LSE Group index data and the use of their data to create financial products require a licence from FTSE, Russell, FTSE TMX, MTSNext and/or their respective licensors.

Past performance is no guarantee of future results. Charts and graphs are provided for illustrative purposes only. Index returns shown may not represent the results of the actual trading of investable assets. Certain returns shown may reflect back-tested performance. All performance presented prior to the index inception date is back-tested performance. Back-tested performance is not actual performance, but is hypothetical. The back-test calculations are based on the same methodology that was in effect when the index was officially launched. However, back- tested data may reflect the application of the index methodology with the benefit of hindsight, and the historic calculations of an index may change from month to month based on revisions to the underlying economic data used in the calculation of the index.


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