Lisa Buckingham
A new equities index, which will include the world’s largest and most international companies, is to start in London later this year.
FTSE International, the organisation that operates Britain’s share indices, is about to sign a contract to run the new benchmark, which has the working title Global Multinational Index.
A series of meetings was called recently by Bacon & Woodrow (B&W), the consultancy working with Barclays Global Investors to mastermind the new index, to sound out 100 of the United Kingdoms’s leading fund managers. Now a legal agreement will be signed with FTSE International, which is keen to grab the initiative from rivals such as Dow Jones and Dax.
Sally Bridgeland of B&W said she was confident the FTSE Global Multinational Index would begin in time for trading to settle ahead of any glitches caused by the millennium bug.
Although all companies included in the new index will be large – of more than $1-billion capitalisation – the main criterion will be the global nature of their business.
Senior fund managers have welcomed the idea of a new index. The project is a response to the recent wave of mega-mergers which have concentrated the stock weighting in the premier national stock markets.
The merger between oil groups BP and Amoco, for example, has created a group which represents more than 5% of Britain’s FTSE index of the 100 biggest companies. Consultants who advise pension trustees regard it as dangerous for a fund to have much more than 3% of its assets in any one stock.
Yet in other countries the position is more extreme. Nokia, the communications group, already accounts for 50% of Finland’s all share index and has to be treated separately.
One advantage of skimming the biggest global corporations into a separate index is expected to be that national indices will represent more accurately national business and economic factors, enabling pension funds better to match their liabilities with their asset allocations.
It might also breathe new life into the small and medium-size companies sector which has been overlooked by investors recently.