Meet the new index, same as the old index

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Russell Investments is switching global equities benchmark providers from its former in-house index series to the MSCI. The move, to take effect from October 1, completes a full circle for the Seattle-headquartered fund manager, which benchmarked its global shares funds to an MSCI gauge until December 2010, after which it adopted a Russell index.

Two funds will be affected: the Global Opportunities Fund and a hedged version of the same product, which will now be measured against the MSCI All Country World Index (ACWI) rather than the Russell Global Large Cap Index Net.

The benchmark changes, which will not impact the Russell fund investment strategies, were “designed to provide clients with an appropriate benchmark that more broadly represents the investable universe of stocks”, the note says.

Russell says a number of factors prompted the latest swap in benchmarks that were last reviewed in 2010.

“We have observed that, over the last several years, the index community has gone through a considerable amount of change with increased consolidation of providers and products and greater degrees of differentiation among the remaining providers,” the note says. “Additionally, we also see considerable changes being proposed by FTSE Russell to the Russell Global Indexes in methodology and construction.

With this, we believe it was critical that we review our underlying benchmarks for appropriateness to our investment process and relevance to our clients and peers.”

The Russell note says the MSCI benchmark was selected for several reasons including “accuracy and consistency”, “robust” and transparent processes, along with its reputation as “the industry leader for multi-country benchmarks”.

In an October 2010 paper Russell Investments said the Russell indexes offered “superior alignment to client needs with respect to risk/return objectives, and also to manager style configuration”.

“… the objectivity and transparency of Russell’s strict rules-based index construction approach underwrites investor confidence in the integrity of this important benchmarking process,” the Russell 2010 paper says.

In 2014 the London Stock Exchange (LSE) bought the Frank Russell business for US$2.7 billion before spinning out the investment and consulting arm almost 18 months later to a joint US private equity venture comprising TA Associates and Reverence Capital for US$1.15.

LSE merged the Russell indexing unit with its existing FTSE benchmarking business under the FTSE Russell banner. The LSE deal highlighted competition in the increasingly lucrative benchmark-manufacturing industry which had seen explosive demand on the back of a global trend to passive investing.

The three largest equity index firms – FTSE Russell, MSCI and S&P – garnered revenue of US$1 billion plus over the six months to June 30, 2017, compared to US$858 million over the same period in the previous year, according to Bloomberg.

About US$16 trillion of investor money tracks FTSE Russell equity benchmarks, of which roughly US$9 trillion is linked to US indices, the company says. MSCI reported about US$14 trillion of assets benchmarked to its indices as at the end of 2017.

– David Chaplin, Investment News NZ

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