FTSE Global Equity Index Series

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INDEX REVIEW: CORPORATE GOVERNANCE 84 benchmark indexes although the underlying differences are marginal with high correlations. Each index is closely correlated to its underlying benchmark index. Over a fiveyear period the tracking errors are higher with the individual country indexes, while the regional indexes of FTSE ISS Developed, FTSE ISS Europe, and FTSE ISS Euro CGI show a five-year tracking error of 1.09%, 1.32%, and 1.11% respectively. Although separate from the index methodology, analysis based around a sample portfolio containing the top 50 and bottom 50 constituents from each theme within the FTSE US Index universe has shown that the bottom 50 underperform the top 50 in four out of five themes over a five-year period. The analysis based on equally weighting the portfolios on a daily basis using FactSet Software, shows this out-performance when using the overall company CGI rating. Apart from the theme Board Structure each bottom 50 portfolio also under-performs an equally weighted FTSE US Index. The Compensation theme interestingly has a negative performance over the period of one year, with the highest volatility of all the themes over the five-year period. Given the level of specific information available at present, there is no definitive link between corporate governance and stock returns. The performance analysis on the US is only a starting point, and by no means conclusive over a five year period. But, over reasonable time periods it is likely that governance factors will show themselves in investment returns. There are a number of reasons put forward for this. One is that sufficient information to make detailed decisions by all investors has The FTSE ISS Corporate Governance Index Series Review Universes Universe Index FTSE All-Share Index FTSE North America Index FTSE Developed Europe ex UK Index FTSE UK Index FTSE Developed Asia Pacific ex Japan Index FTSE Japan Index FTSE ISS CGI FTSE ISS UK CGI FTSE ISS Developed CGI The design process aims to capture 80% of the market cap within each Supersector not been available. Analysis of corporate governance is a skilled affair and the general investment community encompassing asset owners and managers does not have the necessary skills or resources to carry out such investigations across all of their investments. Further, corporate governance is not a one-off due diligence exercise. It is a continuous process. Having carried out the initial work on a company, the corporate governance risk then takes on the mantle of a watching brief. As a consequence, there is a requirement for continual monitoring of corporate governance due diligence. Another consideration is that there have been some high profile investment firms that take corporate governance very seriously and have done so for some years and applied their views to their investments. In the main however many investors (and legislators) only really began to tackle these issues in the wake of scandals such as WorldCom and Enron. Any corporate governance effect would only have been noticeable at some stage after these events. In short, it can be argued even now, that any corporate governance implementation will at best be applied in a somewhat unstructured way particularly across a number of markets. This will help to dissipate any potential “return effects”. Differing legislation and codes of practice can affect the returns within a country. If all companies within a country fall into line then the issues that the rules are meant to rectify will in effect be removed from that market. As time goes by it is fair to assume that a more cohesive implementation by market practitioners around the world will come into play. When this occurs there may well begin to be noticeable return effects. The FTSE ISS Corporate Governance Index Series Construction Methodology 2 3 Oil & Gas Rank by Corporate Governance (CGI) Final Score Highest Lowest 1 Basic Resources FTSE Japan Oil & Gas Review Process FTSE ISS Japan CG Index Chemicals 5 Oil & Gas Basic Resources Chemicals 6 4 Cumulative Investable Mcap Construction & Materials 80% 20% Construction & Materials JULY/AUGUST 2005 • FTSE GLOBAL MARKETS
FTSE Global Markets Company Directory Company Name Page Company Name Page Company Name Page Company Name Page ABN Amro ABN AMRO Mellon Global 32 Securities Services 36 Agence France Trésor 61 Agence France Trésor 57 AIG Global Investment Corp. 8 AIM 24 Allied Domecq 64 American Century Investments 14 American International Group Inc. 8 Archipelago Exchange 14 Athens Organising Committee 25 Athens Stock Exchange 25 Babson Capital Management 75 BancWest Corporation 32 BancWest Corporation 32 Bank of America Corp. 79 Bank of Athens 25 Bank of the West 32 Bankers Trust Company 25 Banque Paribas 30 Baoshan Iron & Steel Co Ltd 22 Barclays Capital 57 Barclays Global Investors 6 BNP Paribas 57 BNP Paribas 28 BNP Paribas 32 BNP Paribas Securities Services Brown Brothers Harriman 41 (BBH) Ltd 36 Burger King 79 Bursa Malaysia 73 Caldwell Asset Management 16 Caldwell Financial Ltd 16 Caldwell Management Ltd 16 Caldwell Securities, Ltd 16 Calyon 32 CCF 57 CDC Ixis 57 CDP Capital 23 Cedel International 45 Cedel International 46 Charles Schwab & Co., Inc 19 Chase Manhattan 53 Chase Manhattan Bank 78 Chicago Board of Trade 70 Chicago Mercantile Exchange 68 China Asset Management Co Ltd 6 China Asset Management Company 20 China Foreign Exchange Trading System 72 FTSE GLOBAL MARKETS • JULY/AUGUST 2005 China Merchants Bank Co Ltd 22 China Mobile China Petroleum & Chemical 6 Corp (Sinopec) 22 Huaneng Power International Inc China Securities Regulatory 22 Commission 22 China Telecom China’s State Administration of 6 Foreign Exchange 72 Citibank 78 CITIC 22 Citigroup Citigroup Global Transaction 78 Services 42 Clearstream 44 Clearstream International 45 CME Holding 69 Cogent 31 Commerce Bancorp Inc Commodity Futures 78 Modernization Act 71 Commodity Research Bureau 10 Community First Bankshares, Inc. 32 Community First National Bank 32 Conseil des Marchés Financiers 30 Crédit Agricole Credit Agricole Indosuez 32 Securities Japan 32 Crédit Suisse Asset Management 38 Credit Suisse First Boston 57 Debt Management Office 60 Debt Management Office 57 Delaware Investment Depository Trust & Clearing 23 Corporation 18 Deutsche 57 Deutsche Börse 25 Deutsche Börse AG 46 Deutsche Börse Clearing Dexia Banque Internationale à 45 Luxembourg 34 Economist Corporate Network 8 EFG Balkan Investments 25 Eurex 71 Euronext 25 Euronext.liffe 71 European Union 26 Executives’ Club of Chicago 69 First Chicago 53 First Hawaiian Bank 32 Ford 74 Fortis Fortis Haitong Investment 8 Management Co. Ltd. 8 FTSE Group 24 General Motors 74 Global Advisors 10 Goldman Sachs Greece’s Capital Markets 16 Commission 25 Haas School of Business 16 Hellenic Postal Savings Banks Hong Kong Exchanges 26 and Clearing Ltd 73 HSBC 57 HSBC 32 HSBC 38 Illinois District Court 71 ING Investment Management 8 INSEAD University 25 Instinet 14 Janney Montgomery Scott Inc 80 Japan’s UFJ Holdings 32 JP Morgan JP Morgan Worldwide 57 Securities Services 36 KPMG/CREATE 40 Lehman Brothers 8 London Stock Exchange 24 Madison Capital Management 53 Malaysia Derivatives Exchange 73 Man Investments, Inc 18 McBride Baker & Coles 69 McDonald’s Corp 79 McGill University Mellon’s Investment 23 Manager Solutions 41 Mercer Oliver Wyman Ministry of National Economy 45 and Finance 25 Moody’s Investor Services 77 Moors & Cabot 80 Morgan Stanley 75 Morningstar 21 Shanghai Securities News 21 NASDAQ 14 National Bank of Greece 25 National Interbank Funding Centre 72 New York Mercantile Exchange 10 New York Mercantile Exchange 10 New York Stock Exchange 14 New York Stock Exchange 69 Northern Trust 36 Northern Trust 8 Northern Trust Global Investments 57 OMHX Online Commodity Exchange 25 of India 73 OPEC 10 People’s Bank of China 72 PIMCO 76 PNC Financial Services Group Inc 80 PowerShares Capital Management 6 RBC Global Services 42 RBS 32 Reuters 14 Royal Bank of Canada 34 Russian Standard Bank 30 Russian Standard Group 30 Ryan, Beck & Co 81 Sandler O’Neill & Partners LP 80 Schwab Institutional Securities and Exchange 19 Commission 14 SEI Investments 23 Shanghai Stock Exchange 72 Shanghai Stock Exchange 22 Sidney Frank 65 Singapore Exchange 73 Société Générale 30 Société Générale 8 Standard & Poor’s 74 Standard Life Investments 23 State Street Global Advisors 6 State Street Global Advisors 22 Sydney Futures Exchange 73 T. Rowe Price 57 TCW Asset Management Company 74 TCW Asset Management Company 76 Telecom Italia 57 The Bank of New York 41 TowerGroup 42 Turk Economi Bankasi 32 Union National Bank 53 United California Bank 32 United Safe Deposit Bank 32 University of Athens 25 University of California 16 Wachovia Corp 79 Wall-mart 53 World Trade Organisation 23 COMPANIES IN THIS ISSUE 85
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Page 3 and 4: monthly default report, Moody’s f
Page 5 and 6: Jumbos is also no longer an exclusi
Page 7 and 8: Agence France Trésor (AFT), the Fr
Page 9 and 10: poor. Worse, if many other countrie
Page 11 and 12: demand and the expectation that UK
Page 13 and 14: as more schemes try to address thei
Page 15 and 16: TODAY’S SPIRITUOUS FRENZY is a re
Page 17 and 18: the top 100 brands, even after dive
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Page 29 and 30: customers additional accounts. On t
Page 31 and 32: that specialises in financial compa
Page 33: each Supersector are eligible for i
Page 37 and 38: FTSE All-Emerging Country Indices C
Page 39 and 40: Stock Performance Best Performing F
Page 41 and 42: % % FTSE Global Equity Index Series
Page 43 and 44: FTSE UK Index Series - Capital Retu
Page 45 and 46: FTSE EPRA/NAREIT Global Real Estate
Page 47: Sharpen up. At FTSE we believe in p

FTSE Global Equity Index Series

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