Indices such as the FTSE 100 play a huge role in investment. They are used for monitoring the performance of a market, for providing a benchmark for a tracker fund to replicate and as a reference when analysing a fund manager’s returns.
The rapid growth of tracker funds, combined with a greater focus on portfolio analytics, means that compiling indices is now big business. Providers charge licensing fees to fund firms to use their benchmarks, so owning famous indices that are in high demand for index funds can be very profitable.
MSCI, FTSE Russell and S&P Dow Jones are the three leading providers, accounting for about 70% of the industry in 2020. All three publish a huge number of global, regional and country indices, many of which are further broken down by style (such as value or growth), currencies or other metrics.
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In some situations, they produce comparable indices where performance tends to be similar (eg, MSCI USA, FTSE USA and S&P 500). In other cases (eg, emerging markets) there may be greater variation because of different decisions on what to include and omit.
MSCI, which was spun out of Morgan Stanley in 2007, is the largest. Its key benchmarks include the MSCI World and the MSCI Emerging Markets. FTSE Russell, which is owned by London Stock Exchange (LSE), began as a joint venture between the stock exchange and the Financial Times in 1995. LSE took full control in 2011 and bought US-based Russell in 2015. It controls the FTSE 100, as well as the Russell 2000 small-cap index. S&P Dow Jones was formed in a merger in 2012, bringing the S&P 500 and the Dow Jones Industrial Average together in one firm.
Other providers behind many important indices include Bloomberg, Nasdaq and Stoxx (owned by Deutsche Börse). A few firms that are not major index providers also provide some key benchmarks, such as JP Morgan in the bond market.
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