UK-based index provider FTSE has partnered with business news group CNBC to launch a new index series tracking the performance of the 100 biggest companies in the Asia-Pacific region.
The FTSE CNBC Asia 100 Index can be licensed as the basis for exchange-traded funds (ETFs), structured products, derivatives or as a performance benchmark.
In addition to the broad-based FTSE CNBC Asia 100 Index, specialised country and industry indices will be available. The indices are based on the Industry Classification Benchmark, a comprehensive, transparent and definitive classification system used by investors and exchanges worldwide, says FTSE.
The index series are calculated using traditional market-capitalisation weightings, because people want to use that type of weighting for standard benchmarking purposes, says Paul Hoff, Asia-Pacific managing director at FTSE.
It also made more sense for CNBC to have a market cap-weighted index for its own purposes, he tells AsianInvestor, since the news provider wanted the index as an overall broad market benchmark against which it could show how the individual stocks are performing.
Market cap weightings have come under criticism from firms such as Research Affiliates and Wegelin Asset Management, which argue that cap-weighted indices will always be overweight those assets whose values have increased the most.
Still, FTSE's market cap weights are adjusted for a company's free-float, says Hoff, meaning that if there isn't a lot of stock available, that company's weighting will be reduced -- that makes it a much more tradable kind of index. Other processes, such as liquidity screening, also help ensure FTSE's indices are highly tradable, he adds, adding that $500 million can be traded on the new index in a day.
FTSE also creates custom indices for product manufacturers, such as ETF providers or investment banks. "Recently we've had various custom requests, and those come to us because there are regulatory requirements from market to market," he says. "They may relate to capping, in that you might only be able to have a maximum of 10% in a particular stock in an index. So we need to adjust some of these benchmarks from time to time."
The index provider is currently working on a custom Asia-Pacific Reit benchmark for one client, while other customers are looking at creating tailored versions of FTSE's China index, says Hoff. Some clients might want indices as a long-term benchmark, while others have used an index for a few years and then withdrawn their investments and cancelled it.
He cites a European fund manager that asked the firm to create a small- and mid-cap Asia-Pacific index and used it for four years before cancelling it.
The FTSE CNBC Asia 100 Index is the latest index venture by FTSE and CNBC, following the FTSE CNBC Global 300 and FTSE CNBC Global 300 Supersectors, launched in 2006.