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investors were charging, ProShares was explicit in disclosing particular risks associated with investing in its leveraged and inverse ETFs. He said that the registration statements at issue “stated in plain English” that the ETFs’ objectives were daily only, and their performance could “diverge significantly” from the underlying index when they were held for longer than one day. Russell Debuts ‘GeoExposure’ Index Family Russell Investments rolled out a group of indexes in mid-September that serve up emerging markets exposure through portfolios comprising developed-market companies. In what the company calls its GeoExposure Index series, Russell designed benchmarks made up of stocks of developed-country companies that derive significant portions of their revenues from emerging economies. The company argued that where a company is based no longer is crucial in determining how it makes money. The methodology relies on financial statement analysis expertise from the financial information firm Revere Data to estimate just how much of a company’s revenue stream is coming from emerging markets, Russell said. The indexes factor in not only what percentage of a company’s revenue originates in emerging markets but also the total dollar revenue coming in from the region. Each company’s weighting in the mix is designed to reflect the significance of this exposure by taking into account the percentage of revenue, the dollar amount and the company’s market capitalization. The intention, according to a Russell representative, is to eliminate size bias and improve the tradability of the indexes. The benchmarks are created from existing Russell Global indexes and are rules-based. The series initially consists of four indexes: • Russell 1000 Emerging Markets GeoExposure Index • Russell Developed Large Cap Emerging Markets GeoExposure Index • Russell Developed Europe Large Cap Emerging Markets GeoExposure Index • Russell Developed ex-North America Large Cap Emerging Markets GeoExposure Index FTSE Signs Deal With Chinese Exchange FTSE is teaming up with a subsidiary of the Shenzhen Stock Exchange to develop new indexes based on Chinese A-Shares, with a particular focus on alternative-weighting methodologies and socially responsible investing, the index provider said in early September. Under a new agreement, FTSE and the Shenzhen Securities Information Co. Ltd will undertake new indexrelated research and create specialized A-Share indexes based on so-called intelligent beta indexing methodologies and/or on ESG standards that screen components according to environmental, social and governance parameters. With an established data license agreement in place, the agreement signed in September builds on an existing relationship with the Shenzhen Stock Exchange, FTSE said. Shenzhen Securities Information Co. Ltd is the organization authorized by the Shenzhen Stock Exchange to manage its securities information. China A-Shares are securities from mainland China-based companies, and have been mostly off limits to foreign investment and tightly regulated by the government. However, ongoing financial reforms that aim to improve foreign investment in mainland companies are slowly making A-Shares more accessible. FocusShares Closes Up Shop FocusShares, the ETF unit of brokerage firm Scottrade, announced in early August it was liquidating its entire roster of 15 ETFs due to the funds’ failure to attract enough assets. The funds had combined net assets of some $100 million at the time of the announcement. They last traded on Aug. 17, and closed to new investment as of Aug. 20. Any investor still holding any of the ETFs by Aug. 30 was promised a cash distribution equal to the amount of the net asset value of those shares as of that date, including any capital gains and dividends. There will be no fees tied to that. The move came just a few short months after FocusShares launched an aggressive marketing campaign designed to bring investor attention to its low-cost funds. At that time, the company hoped to bring to the limelight the fact that some of its ETFs were the cheapest on the market and that Scottrade clients could trade them commission-free. Scottrade acquired FocusShares in 2010, some two years after FocusShares had shuttered a number of niche ETFs in the wake of the 2008 market crash. The company rolled out its roster of funds back in March 2011. The list of liquidated ETFs includes the broad Focus Morningstar US Market Index ETF (NYSE Arca: FMU), and three ETFs targeting the large-, mid- and small-cap segments as well as 11 sector-focused ETFs. Russell Closing ETFs, Altering Plan Scottrade’s announcement of the liquidation of its FocusShares ETFs www.journalofindexes.com November / December 2012 53
News was followed quickly by a similar announcement from Russell. The firm, which began launching its own ETFs in May 2011 with a distilled focus on indexed smart-beta strategies, said it was closing all but one of its funds due to their lack of assets. However, Russell won’t abandon its ETF plans entirely. Instead it will narrow its focus on actively managed strategies. It made tangible that strategic shift by leaving open the actively managed Russell Equity ETF (NYSE Arca: ONEF), according to a company press release. The company made a splashy debut in the spring of last year with the rollouts of numerous smart-beta ETFs, such as the Russell 1000 Low Volatility ETF (NYSE Arca: LVOL), which it said were the next logical step in the ETF revolution. Some smart-beta funds have found success, but Russell’s funds never really took off. Some industry sources have said the funds’ strategies were difficult to grasp. The press release announcing the decision noted the 25 funds had total assets of $310 million as of July 31. According to Russell, the affected funds were to close to new investment on Oct. 9, 2012, with the final liquidation scheduled for Oct. 24. Investors who still held shares on Oct. 16 were to receive cash equal to the amount of the net asset value of their shares as of that date. Shiller, Barclays Launch ‘CAPE’ Indexes In September, Barclays Plc rolled out a family of equity indexes with a value tilt in partnership with Yale economics professor Robert Shiller; the index series filters sectors in connection with changes in price/earnings ratios. The Shiller Barclays CAPE Index Family uses the cyclically adjusted price-to-earnings ratio (CAPE) as a key driver for the valuation of sectors and is designed for buy-andhold investors with a multiyear time horizon. Although European indexes are slated to launch in the coming months, the first three benchmarks in the Shiller Barclays CAPE Index Family will initially include three indexes based on U.S. sectors, each available in dollar, British sterling and euro currency versions. Those three are: • Shiller Barclays CAPE US Sector Tilted Index, which is overweight four favored sectors and underweight six least-favored sectors • Shiller Barclays CAPE US Sector Index, which equal-weights four favored sectors • Shiller Barclays CAPE US Sector Market Hedged Index, which holds a long position in the Shiller Barclays CAPE US Sector Index and a short position according to the beta of the sectors The Shiller Barclays CAPE Index Family is calculated and published by Barclays Index, Portfolio and Risk Solutions team, Barclays said. It will be published on Barclays Live, the Barclays Index website and on Bloomberg. INDEXING DEVELOPMENTS FTSE Debuts Minimum Variance Series FTSE kicked off August with the launch of its FTSE Global Minimum Variance Index series, according to a press release from the index provider. The benchmark family’s methodology seeks to offer lower volatility than traditional indexes—thus potentially improving the risk/return profile— while still providing broad exposure to the underlying markets. The index family is derived from the FTSE All-World Developed Index series, the press release said, and the initial launch included eight indexes: • FTSE Developed Minimum Variance Index • FTSE Developed Europe Minimum Variance Index • FTSE Developed Europe ex UK Minimum Variance Index • FTSE Eurobloc Minimum Variance Index • FTSE Developed Asia Pacific Minimum Variance Index • FTSE Developed Asia Pacific ex Japan Minimum Variance Index • FTSE USA Minimum Variance Index • FTSE Japan Minimum Variance Index FTSE actually launched a minimum-variance version of its bluechip U.K. index, the FTSE 100, in late 2011, but it has a separate methodology, a FTSE fact sheet said. DJIA Sees Component Change S&P Dow Jones Indices announced in mid-September that the Dow Jones industrial average’s component list would change as of Sept. 21, according to a press release from the index provider. UnitedHealth Group Inc. replaced Kraft Foods Inc.—the latter company is in the process of spinning off its North American grocery business, the press release said. Kraft’s breakup was scheduled to be completed on Oct. 1, with the new company adopting the name Kraft Foods Group and its parent company going by the name Mondelez International Inc. The press release said that the change was decided upon after the Dow Jones Averages Index committee determined Mondelez’s smaller size and expected reduction in revenue from the U.S. would render it “less representative” of the U.S. large-cap segment. UnitedHealth Group is a provider 54 November / December 2012
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Page 3: Contributors Mark Abssy Mark Abssy
Page 6 and 7: STOXX LIMITED INNOVATIVE INDEXING.
Page 8 and 9: People’s futures are in your hand
Page 10 and 11: ©2012 Morningstar, Inc. All rights
Page 12 and 13: Exchange-traded products span a wid
Page 14 and 15: Figure 5 Median notional Volume ($B
Page 16 and 17: the put spread in this example is $
Page 18 and 19: The Loch Ness Monster. Sightings of
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Page 22 and 23: Over the past 12 years, U.S. invest
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Page 26 and 27: 500 BuyWrite Index (BXM)—was anno
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Page 36 and 37: Depression was history, rather than
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Page 40 and 41: Alternative Investments 4.0% Real E
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Page 60 and 61: Morningstar Index Funds U.S. Style
Page 62 and 63: Exchange-Traded Dow Jones U.S. Indu
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