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Index IDEA: FTSE Russell Indexes Highlight Outperformance for Low Vol US Stocks

As global equity markets ride a roller coaster of volatility to start the new year, US stocks have turned down sharply,  reflected by a nearly 9% decrease for the US large-cap Russell 1000® Index year-to-date as of January 21.

And, while there have been few bright spots for investors in the global equity markets year-to-date, analysis by FTSE Russell shows that smart beta indexes which screen constituents based on lower volatility or lower beta characteristics among other factors have held up well relative to their market capitalization weighted peers amid recent market volatility as well as over the longer term.

FTSE Russell examined performance for the Russell 1000® Low Volatility Focused Factor Index and Russell 1000®  Low Beta Equal Weight Index relative to the Russell 1000® Index for January to-date as well as the one, three and five year periods ended January 21.

Low volatility-oriented US large cap stocks have led in the near term and across market cycles as represented by smart beta indexes offered by FTSE Russell offering unique methodologies:

  • The Russell 1000® Low Volatility Focused Factor Index is designed to capture exposure to a core of three factors – Quality, Value, Size – with an additional tilt focusing on Low Volatility.
  • The Russell 1000® Low Beta Equal Weight Index is derived from a subset of Russell 1000® Index stocks and has been designed to reflect the performance of securities exhibiting relatively low beta, where all index constituents are weighted equally.

Ken O’Keeffe, Managing Director, Global ETPs, FTSE Russell:

“Examining recent and longer term performance for FTSE Russell indexes which focus on lower volatilty US large cap stocks relative to the market capitalization weighted Russell 1000® Index helps demonstrate the effects of having indexes that screen constituents for lower volatility characteristics among other factors. And while there may be few havens for investors during this period of heightened market volatility, investors now have access to a more powerful set of indexes to help them better understand market dynamics in up as well as down markets which can help them to  to make more informed investment decisions.”

According to a FTSE Russell 2015 survey of retail financial advisors in the United States, the top three motivating reasons for financial advisors using index-based products were for help in pursuing downside protection in bad markets (62%), lowering volatility (53%) and increasing alpha (49%).

 

© 2016 London Stock Exchange Group companies.

London Stock Exchange Group companies includes FTSE International Limited (“FTSE”), Frank Russell Company (“Russell”), MTS Next Limited (“MTS”), and FTSE TMX Global Debt Capital Markets Inc (“FTSE TMX”). All rights reserved.

“FTSE®”, “Russell®”, “MTS®”, “FTSE TMX®” and “FTSE Russell” and other service marks and trademarks related to the FTSE or Russell indexes are trademarks of the London Stock Exchange Group companies and are used by FTSE, MTS, FTSE TMX and Russell under license.

Views expressed by Ken O’Keeffe are based on information as of January 21, 2016, are subject to change and do not necessarily reflect the views of FTSE Russell or the London Stock Exchange Group. 

All information is provided for information purposes only. Every effort is made to ensure that all information given in this publication is accurate, but no responsibility or liability can be accepted by the London Stock Exchange Group companies nor its licensors for any errors or for any loss from use of this publication.

Neither the London Stock Exchange Group companies nor any of their licensors make any claim, prediction, warranty or representation whatsoever, expressly or impliedly, either as to the results to be obtained from the use of the FTSE Russell Indexes or the fitness or suitability of the Indexes for any particular purpose to which they might be put.

The London Stock Exchange Group companies do not provide investment advice and nothing in this communication should be taken as constituting financial or investment advice. The London Stock Exchange Group companies make no representation regarding the advisability of investing in any asset. A decision to invest in any such asset should not be made in reliance on any information herein. Indexes cannot be invested in directly. Inclusion of an asset in an index is not a recommendation to buy, sell or hold that asset. The general information contained in this publication should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional.

No part of this information may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior written permission of the London Stock Exchange Group companies. Distribution of the London Stock Exchange Group companies’ index values and the use of their indexes to create financial products require a license with FTSE, FTSE TMX, MTS and/or Russell and/or its licensors.

Past performance is no guarantee of future results. Charts and graphs are provided for illustrative purposes only. Index returns shown may not represent the results of the actual trading of investable assets. Certain returns shown may reflect back-tested performance. All performance presented prior to the index inception date is back-tested performance. Back-tested performance is not actual performance, but is hypothetical. The back-test calculations are based on the same methodology that was in effect when the index was officially launched. However, back- tested data may reflect the application of the index methodology with the benefit of hindsight, and the historic calculations of an index may change from month to month based on revisions to the underlying economic data used in the calculation of the index.

This publication may contain forward-looking statements. These are based upon a number of assumptions concerning future conditions that ultimately may prove to be inaccurate. Such forward-looking statements are subject to risks and uncertainties and may be affected by various factors that may cause actual results to differ materially from those in the forward-looking statements. Any forward-looking statements speak only as of the date they are made and neither London Stock Exchange Group companies nor their licensors assume any duty to and do not undertake to update forward-looking statements.

 

 

 

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