In early 2020 FTSE Russell, along with the Church of England Pensions Board (CEPB) and Transition Pathway Initiative (TPI), launched the FTSE TPI Climate Transition Index. The index was the first to incorporate the objectives of the Paris Agreement and offer investors the chance to align their broad equity portfolios with companies based on their forward-looking commitments to a carbon emission pathway in keeping with a less than 2°C increase in average global temperatures. Since its launch customised versions of the index are being developed.

"Investors are critical agents of change in the climate transition, possessing enormous power to encourage timely and economically efficient decarbonisation by the portfolio companies. Our unique collaboration with TPI and the CEPB plays an important role in this process, through the creation of indexes to support investors seeking greater alignment to the objectives of the Paris Agreement," said Sylvain Château, head of...

by Manesh Gupta, senior research analyst, fixed income

Despite the tragic impact of COVID-19 on India in recent months, the country "remains a potential target of global investors with long-term horizons.

Indian financial markets have witnessed far reaching reforms in the post liberalisation era in terms of market design including introduction of new instrument and derivative products, regulatory reforms and technological developments. The Indian debt market far exceeds its equity equivalent, and is estimated to be around USD 1.7 trillion, of which approximately USD 1.1 trillion are in central government securities also known as G-Secs or Gilts.

FAR (Fully Accessible Route) Bonds

India government has been taking several measures to encourage participation by foreign investors into the Indian debt market.  Foreign investors have historically only been permitted to invest in the Indian government securities up to a 6% limit of the total...

By Catherine Yoshimoto, Director, Product Management

We’ve written extensively of late on the apparent rotation in performance from growth stocks to value stocks, and how investors might surf this wave. Until recently global growth stocks have had a good run relative to value stocks, outperforming by 7.6% on an annualized basis over the 10 years ending September 30, 2020. But the trend reversed in Q4 2020, and global value stocks have since outpaced growth stocks considerably. The about-face has many investors wondering whether the style rotation is here to stay—and if so, what to consider when it comes to their portfolios.   

A long-awaited rotation

As shown below, the aftermath of the Global Financial Crisis (GFC) spurred an extended period of growth outperformance, which became further pronounced at the onset of the pandemic crisis.

 

However, November 2020 marked a turning point for this trend, as the emergence of COVID-19...

The Russell US Indexes are designed to reflect the ever-changing US equity market, and the annual reconstitution process is critical to maintaining accurate representation. During this highly-anticipated market event, the breakpoints between large, mid and small cap are redefined to ensure market changes that have occurred in the preceding year are captured. Companies are also revaluated to determine where they lie along the investment styles spectrum. 

In early 2020 FTSE Russell, along with the Church of England Pensions Board (CEPB) and Transition Pathway Initiative (TPI), launched the FTSE TPI Climate Transition Index. The index was the first to incorporate the objectives of the Paris Agreement and offer investors the chance to align their broad equity portfolios with companies based on their forward-looking commitments to a carbon emission pathway in keeping with a less than 2°C increase in average global temperatures. Since its launch customised versions of the index are being developed.

"Investors are critical agents of change in the climate transition, possessing enormous power to encourage timely and economically efficient decarbonisation by the portfolio companies. Our unique collaboration with TPI and the CEPB plays an important role in this process, through the creation of indexes to support investors seeking greater alignment to the objectives of the Paris Agreement," said Sylvain Château, head of...

The sukuk market: growing, underserved and resilient in the COVID crisis Mohamed Mokhtar, IdealRatings / Redha Al Ansari, LSEG / Lydia Hamill, FTSE Russell [[ webcastStartDate * 1000 | amDateFormat: 'MMM D YYYY h:mm a' ]] 45 mins

By Robin Marshall, director, fixed income research

Setting the context…inflation-linked protection is in demand

After central banks responded with substantial Quantitative Easing programs (QE), following the COVID shock in Q1 2020 and the beginning of the vaccine rollouts, demand for inflation-linked bonds has increased. In fixed income, investors have rotated away from safe haven government bonds, and sought inflation protection instead in the reflation trade, by switching into inflation-linked bonds. As a result, real yields on inflation-linked bonds have fallen since the end of October (despite the increase in nominal yields), and breakeven inflation (BEI) rates have risen, as Chart 1 shows for the US. Such decoupling of nominal and real yields is very unusual, and reflects the highly uncertain economic and financial regime, ushered in by the pandemic.

...and accurate breakeven inflation rates are key for investors and policy makers

...

Total US equity market capitalization increased 52% reaching $47.7 trillion as of May 2021. Market cap breakpoint separating small-caps (Russell 2000 Index) and large-caps (Russell 1000 Index) increased by 73%. Four companies exceeded $1 trillion in total market cap, with Alphabet joining Microsoft, Apple & Amazon, which reached this milestone in 2020. Tesla and JP Morgan Chase & Co. join the top ten companies in the Russell US Indexes.

Introducing ESG analytical tools for corporate bond & multi-class fixed income Katie Prideaux, Dr. Barnabus Acs, and Maryse Gordon [[ webcastStartDate * 1000 | amDateFormat: 'MMM D YYYY h:mm a' ]] 60 mins

Which less-explored market has been delivering stellar equity performances in recent years, performances on par with or better than those of global equities, developed market equities, emerging market equities, and frontier market equities? What market represents one of the few countries in the world to have posted positive growth in 2020 amidst the COVID-19 pandemic? It’s a country market that is also a well-positioned manufacturing hub ready to benefit from supply chain relocations due to US-China trade tensions, and boasting cheaper labor costs. It enjoys substantial road, airport and seaport transportation infrastructure, all of which is being rapidly upgraded to cater for increasing export demand.  And it’s a market that is also currently on FTSE Russell’s watchlist as under consideration for advancement from frontier to secondary emerging market status.

The country we’re talking about is Vietnam.

Positive growth amidst pandemic challenges

...

By David Harris, Head of Sustainable Business, LSEG

When it comes to sustainable investment, investors are subject to a range of sometimes competing pressures. They increasingly recognize the long-term, risk-return benefits of integrating climate or broader ESG analysis. They see the advantages in exercising their rights as shareholders, through active ownership, to encourage better sustainability performance. They want to demonstrate positive impact.

Further, many investors also want to harvest the benefits of low cost diversified return that broad passive index portfolios offer, which militates against one of the most powerful responsible investment tools – that of ”exit." Meanwhile, active ownership can be resource intensive especially where it involves engagement across hundreds or even thousands of companies across broad and diversified portfolios; in an environment characterized by relentless pressure on costs, these resources can be difficult to find.

...

Total US equity market capitalization increased 52% reaching $47.7 trillion as of May 2021. Market cap breakpoint separating small-caps (Russell 2000 Index) and large-caps (Russell 1000 Index) increased by 73%. Four companies exceeded $1 trillion in total market cap, with Alphabet joining Microsoft, Apple & Amazon, which reached this milestone in 2020. Tesla and JP Morgan Chase & Co. join the top ten companies in the Russell US Indexes.

by Robin Marshall, director, fixed income research

China’s arrival in global indexes changes the nature of the asset allocation decision for global investors benchmarked against them. Investors may now need reasons to justify not investing strategically in Chinese government bonds, rather than a justification for doing so tactically when they were not included in benchmark indexes. Since foreign holdings of Chinese government bonds have been low historically, there is the potential for them to rise significantly.

Foreign holdings of Chinese govt bonds have risen but are still low versus major markets…

Foreign private sector holdings in renminbi assets have been low generally relative to other major markets[1], particularly in Chinese government bonds. Although they have reached about 10% of the total outstanding (as of Q4 2020), from only 2% in 2016, they still lag foreign holdings of nearer to 30% in the US and UK markets as Table 1 shows.

...

By Claire Hugo, sustainable investment analyst

Biodiversity is often relegated to a niche status in the world of sustainable investment priorities. As the UN COP15 biodiversity conference—which should have been happening this month in China—is delayed by the pandemic[1] until October, it should not be forgotten. Investors should take note of the importance biodiversity plays in both ecosystems and economies, its importance to other sustainability issues, particularly climate change, and the need to consider it as an integral part of the sustainable investment agenda. At FTSE Russell we recognise that biodiversity is a key part of climate risk at the national level, environmental performance at the corporate level and an integral part of the green economy. That is why ecological resilience is a key sub pillar in our Climate Risk-Adjusted World Government Bond Index, biodiversity is one of the 14 themes in our corporate ESG scores and, in our Green Revenues Classification...

How stretched are US equity valuations? Kristy Akullian & Amy Whitelaw (BlackRock); Mark Barnes & Catherine Yoshimoto (FTSE Russell) [[ webcastStartDate * 1000 | amDateFormat: 'MMM D YYYY h:mm a' ]] 75 mins

By Catherine Yoshimoto, director, product management

Last Friday we announced preliminary changes to the Russell US Indexes for our 33rd annual Russell Reconstitution. More than $10 trillion is benchmarked to these indexes—and the annual “Russell Recon” is critical to ensuring they accurately represent the ever-changing US equity market.

Every year in June, all eyes are on the reconstitution not only in the interest of rebalancing assets that track them, but also for the story it tells about the preceding year in US equity markets. And while the 2020 reconstitution narrative was largely about divergent markets where small caps got smaller and large caps got bigger, the 2021 story is about widespread market recovery across all size segments.

Breakpoint between large and small cap reaches all-time high

Redefining the breakpoints between the indexes’ large and small cap segments is a key function of the annual reconstitution—and the outcome of...

Introducing ESG analytical tools for corporate bond & multi-class fixed income Katie Prideaux, Dr. Barnabus Acs, and Maryse Gordon [[ webcastStartDate * 1000 | amDateFormat: 'MMM D YYYY h:mm a' ]] 60 mins

As this issue is very quickly becoming front and center in the public dialogue, we work closely with the investment community to provide data and analytics that zero-in on sustainable investment hotspots and climate-informed indexes that can cool down investment strategies.

Discover UK equities with ESG and climate metrics Sam Whitehead (Invesco); Hilary Norris & Andrew Dougan (FTSE Russell) [[ webcastStartDate * 1000 | amDateFormat: 'MMM D YYYY h:mm a' ]] 60 mins

By Ying Bai, ESG lead, Greater China. 

As China rebounds from the coronavirus pandemic and policymakers push ahead with capital market reforms, one thing remains clear: the world’s second largest economy is more determined than ever to make progress in the area of sustainable investment.

In September, President Xi announced China’s ambitious plan to achieve carbon neutrality by 2060 at the General Debate of the 75th Session of The United Nations General Assembly.[1] A significant part of the effort required to achieve this will be in enforcing rigorous environmental, social, and governance (ESG) standards for China’s corporations, given the rapidly ballooning global demand for sustainable assets. To implement it and achieve a high quality of ESG data disclosure will require joint efforts from corporates, regulators, financial service providers and all other relevant industry players from both domestic and international markets.

Investment...