FTSE and EDHEC launch index series

FTSE Group and EDHEC-Risk Institute, a centre for applied asset and risk management research, have launched the FTSE EDHEC-Risk Efficient Indices. The index series uses a risk-adjusted strategy similar to traditional market capitalisation-weighted indexes to deliver an optimal risk/return ratio.

The FTSE EDHEC-Risk Efficient Index Series can be used by asset owners and investment consultants to capture equity market returns. Efficiency is achieved by maximising the Sharpe ratio by weighting the constituents of the indexes. The enhanced methodology, combined with a constituent base from the FTSE All World Index Series, allows investors to develop passive investment strategies, an area that is consistently growing amidst the global recovery.

“Overall, traditional commercial capitalisation weighted indices are not designed to be at the pinnacle of efficiency or provide well-diversified portfolios, as they principally track the market,” explained Noël Amenc, Director of EDHEC-Risk Institute.

He said the institute had undertaken major research “in a methodology that minimises excessive concentration of risk and affords investors the ability to benefit from the maximum Sharpe ratio portfolio. This simple concept is primarily based on the concept of a positive and robust long-term relationship between the risk of a stock and its return.”

“Increasingly, investors are looking to diversify their core passive funds across a range of benchmarks weighted by market cap and other weighting schemes.  The weighting methodology developed by the EDHEC-Risk Institute provides a robust and transparent approach to constructing a benchmark seeking to achieve an efficient risk return,” commented Mark Makepeace, chief executive FTSE Group.