Another benchmark provider is joining the march into environmentally focused indexes with FTSE's launch of the FTSE ET50 Index.
The index covers the world's top environmental technology companies and was developed jointly by FTSE and Impax Asset Management, an investment management firm specializing in the environmental sector. It has an annualized five-year total return of 31.7% versus a return of 19.7% for the FTSE Global All Cap Index.
The 50 components are selected from a universe of 500 stocks determined by Impax. All of the selected components are pure-play environmental technology companies representing categories such as alternative energy and energy efficiency (68% of the index), water technology and pollution controls (15%) and waste technologies and resource management (17%).
"The FTSE ET50 index will appeal to institutional and retail investors who want to gain exposure to and track the performance of these fast growing and dynamic sectors," said Will Oulton, FTSE's head of Responsible Investment. The index is designed to be used as the basis for investable products such as exchange-traded funds (ETFs) and structured products.
The FTSE ET50 Index is part of a trend. Indexes focused on ecology themes, many with ETFs based on them, have been cropping up fairly steadily in the last couple of years. These include companies such as WilderShares, KLD, HSBC and even Standard & Poor's have all recently launched ecologically oriented indexes.
In fact, S&P launched the S&P Eco Index, which covers eco-friendly businesses, just last week.
Call it the "Al Gore Effect" if you like (after his movie "An Inconvenient Truth"), but this particular trend in indexing is less about saving the Earth and more about capitalizing on companies that stand to benefit as global awareness of environmental problems increases.
As policies and practices change to become more environmentally positive, new technologies and innovations will be needed—indexes like the FTSE ET50 seek to capture the performance of the companies that will be offering those products and services.
According to a press release, the FTSE ET50 Index is just the first in what will be a series of indexes that FTSE will develop with Impax.
The benchmark's largest component is Denmark's Vestas Wind Systems, which has a weighting of 11.34%, followed by U.S. company SunTech Power Holdings Co. (STP) at 7.25%, First Solar Inc. (FSLR) of the U.S. at 6.03%, Spain's Gamesa at 4.99% and Iberdrola Renovables, also of Spain, at 4.08%.
The top 10 companies in the index have a combined weight of a bit more than 50%. The United States represents about 41% of the index, while Denmark is the second-largest country at nearly 15% of the index. Spain has a weighting of 10.57%, while Germany comes in at 9.10%. The fifth-largest country, Norway, has a weighting of just 2.94%.
More Markets Added To Dow Jones Wilshire Indexes
No doubt driven at least in part by the new attention focused on emerging markets, Dow Jones Indexes and Wilshire Associates have announced that three new countries will be added to the Dow Jones Wilshire Global Index family.
Bahrain, Kuwait and Sri Lanka will be included in the global index series starting March 24, following the next index quarterly review. All three are classified as emerging markets. In addition to the creation of new individual country indexes, the change will affect the Jones Wilshire Global Total Market Index, Dow Jones Wilshire Global exUS Index and Dow Jones Wilshire Emerging Markets Index, which will now include the newly added markets. Bahrain and Kuwait will also be incorporated into the Dow Jones Wilshire Middle East & Africa Index, while Sri Lanka will enter the Dow Jones Wilshire Asia-Pacific Index. Dow Jones projects that the change will ultimately result in the addition of eight Bahraini, 69 Kuwaiti and 18 Sri Lankan companies to the Dow Jones Wilshire Global Total Market Index in March.
The additional countries bring the total number of countries covered by the Dow Jones Wilshire Global Index family to 61, and the total number of emerging markets to 33.
"As managers continue to extend their search for performance—especially in emerging markets—we're seeing more of these markets taking steps to foster a more desirable investment environment for foreign investors. Adding these countries recognizes both the investability of these markets and the increased interest of institutional and retail investors in these markets," said Wilshire Associates President Lawrence Davanzo, who also heads the company's investment management businesses.
The move brings Dow Jones Indexes more into line with the other index providers in terms of breadth of country coverage, although there's continued debate in the industry about where these belong in the index spectrum.
FTSE covers 24 developed markets (or it will, once Israel migrates to its developed family in June) and 22 emerging markets (also effective in June, when Hungary and Poland will be added to the indexes and Pakistan will be removed) for a total of 46 countries. It does not include any of the countries to be added by Dow Jones, but it has said it is looking into developing frontier indexes. It is the only other one of the major index providers who does not currently provide some sort coverage for those three markets.
MSCI has indexes for Kuwait, Bahrain and Sri Lanka, but they are classified within its frontier market index family, which includes 19 countries. MSCI also covers 23 developed markets and 25 emerging markets for a total all together of 67 countries.
S&P, meanwhile, covers 27 developed markets and 35 emerging markets; it also covers 22 frontier markets—84 in all. It groups Kuwait, Bahrain and Sri Lanka in its emerging markets index family, although not within the investable series.
Finally, Russell also includes all three of Dow Jones Wilshire's newly added countries in its global index family as emerging markets; Russell's global indexes cover 63 countries, with 37 classified as emerging markets.
Some might be tempted to view the new additions as "keeping up with the Joneses," since the markets involved are so tiny. However, with investors becoming more serious about international investment, especially in emerging and frontier markets, the number of countries covered by an index family will likely become more of an issue. No one wants to miss the next hot country story—Vietnam, anyone?
Written by Heather Bell
