FTSE and Standard & Poor's deploy risk controls

Index providers FTSE Group and Standard and Poor’s (S&P) have addressed demand from investors for ways to enhance their portfolios while managing risk by launching indexes with in-built risk controls.

The FTSE EDHEC-Risk Efficient Index Series uses the Sharpe Ratio – which measures the reward per unit of risk of an investment – to optimise risk-reward efficiency. It does this by ensuring an index is not weighted too heavily towards a particular sector.

The initial launch comprises indexes for developed Asia-Pacific ex-Japan, Eurobloc, Japan, UK and USA, all based on the constituents of the corresponding FTSE All World Index Series.

S&P’s Global Clean Energy Daily Risk Control Indices manage risk by balancing investments in the index with a cash fund. As volatility increases, more of the investment will switch into the cash fund and earn interest for the investor, and vice versa. The range comprises four indexes giving exposure to the S&P Global Clean Energy Index. The indexes have target volatility levels of 5%, 10%, 12% and 15%, around which the controls will be triggered.

The index provider has licensed Barclays Capital to create products based on the range. The FTSE indexes are designed as benchmarks and are not tradable.

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