Although UK stocks as measured by the FTSE 100 and FTSE 250 ex Investment Trust indices (see Chart 1) have delivered positive absolute returns since the start of 2016, UK equities have structurally underperformed global equities over the same period (Chart 2). This is reflective of both the strength of the performance of global equities (particularly the US) and investors factoring in a risk premium for UK equities as Brexit uncertainty built.

While the FTSE100 and FTSE 250 ex Investment Trust have delivered positive absolute returns since 2016…

…UK equities have significantly underperformed global equities.

The main impact that Brexit uncertainty has had on UK equities is via a valuation shift:

The chart below shows that since 2016 the UK 12-Month Forward PE ratio has declined from around 16x (prior to referendum) to 13x and is one of the few markets to have witnessed a sequential de-rating over the period.

In fact, the UK...

Although UK stocks as measured by the FTSE 100 and FTSE 250 ex Investment Trust indices (see Chart 1) have delivered positive absolute returns since the start of 2016, UK equities have structurally underperformed global equities over the same period (Chart 2). This is reflective of both the strength of the performance of global equities (particularly the US) and investors factoring in a risk premium for UK equities as Brexit uncertainty built.

While the FTSE100 and FTSE 250 ex Investment Trust have delivered positive absolute returns since 2016…

…UK equities have significantly underperformed global equities.

The main impact that Brexit uncertainty has had on UK equities is via a valuation shift:

The chart below shows that since 2016 the UK 12-Month Forward PE ratio has declined from around 16x (prior to referendum) to 13x and is one of the few markets to have witnessed a sequential de-rating over the period.

In fact, the UK...

By Robin Marshall, director, bond research

The focus by markets and the media on recession risks, that were signaled by the brief inversion of the 10s/2s US yield curve in 2019, failed to recognize the key differences between the 2019 inversion and earlier episodes. In those cycles, when the inverted yield curve proved a reliable recession indicator, the inversion occurred after a period of tightening financial conditions and Fed policy (eg, 2008/09). Furthermore, the inversion persisted for some months, and was matched by inversion of the 30 yrs/2yrs curve, unlike 2019, when it did not, and the Fed eased policy by 75bp, rather than tightened. So there were more differences than similarities between the 2019 inversion and that of 2007/08, or 1999/2000 (see Chart 1).

The key point in Chart 2 is the message from an inverted 10s/2s curve needs to be confirmed in (a) a tightening of financial conditions, (b) an inversion of longer maturities, and (c)...

As investors’ understanding of the risks and opportunities arising from climate change has grown in sophistication, so too have investor approaches to capturing these aspects of climate change in their portfolios. These evolutionary steps have seen the market develop from relatively simple risk-based implementation options – such as creating "ex fossil fuel" or "low carbon" portfolios – to approaches that also capture the potential upside from the transition to a low carbon economy,  e.g. via increased exposure to the global green economy.

Up to now, the missing piece has been a robust, data driven approach to capturing the forward-looking aspects of corporate efforts to adjust their businesses for the climate transition.

Quality held the largest sway over global equity markets relative to other market factors in 2019, despite the fourth quarter risk rally, according to new research from global index provider FTSE Russell. In its recently published Market Maps Regional Factor Indicator Report, our strategists describe a global market in which investors rewarded stocks with high quality, high profitability and low leverage. Notably, the UK was the only major market in which Quality did not outperform, but it did outperform all other markets in positive impact of Size.

Source: FTSE Russell and Refinitiv. All data as of December 31, 2019. Results shown for regional Factor Indicators represent hypothetical, historical performance, at Tilt 1, based on FTSE Global Equity Index Series and the FTSE Global Factor Index Series. Past performance is no guarantee of future results.

Philip Lawlor, managing director, head of global market research, FTSE Russell:

The right ETF starts with the right index. And as a leading industry index provider, we believe offering deeper knowledge about how indexes work can help drive better portfolio outcomes. We’re pleased to participate and collaborate with our industry partners at the biggest ETF event of the year. 

The right ETF starts with the right index. And as a leading industry index provider, we believe offering deeper knowledge about how indexes work can help drive better portfolio outcomes. We’re pleased to participate and collaborate with our industry partners at the biggest ETF event of the year. 

Record assets flowed into ETFs that provide exposure to stocks based on ESG considerations in 2019, reflecting a growing desire on the part of investors to add sustainability considerations to their investment portfolio.

And investors entering this asset class have been rewarded in recent years in terms of performance, as reflected by the FTSE US All Cap Choice Index, part of the FTSE Global Choice Index Series, which rose 33.5% for the year relative to a 31.3% return for the FTSE USA All Cap Index on which it is based.

Tony Campos – director, ESG Americas, FTSE Russell:

“The FTSE Global Choice Index Series can be an efficient way for investors to begin adding a sustainability screen to a broad investment portfolio. The indexes measure the impact of a company’s products and its conduct, excluding companies that manufacture vice products or weapons and screening for conduct issues such as corruption or environmental scandals.”

Rich...

The right ETF starts with the right index. And as a leading industry index provider, we believe offering deeper knowledge about how indexes work can help drive better portfolio outcomes. We’re pleased to participate and collaborate with our industry partners at the biggest ETF event of the year. 

By Rolf Agather, managing director, applied research at FTSE Russell

As the bull market marched on in 2019, rising markets continued to lift US stocks to new highs. Indexes are generally the metric for these milestones, which can at times raise questions about uneven performance—particularly when an index reaches an all-time high while another comparable index doesn’t. But comparisons such as these lose sight of the very purpose of a passive index, which is to stay true to its stated objectives rather than outperform them.

Let’s take, for example, two indexes designed to measure the US small cap equity market. While they might appear similar in name, they can be significantly different in composition. If these two indexes are constructed using a different set of rules, they can vary with respect to the nature and number of their constituents, which can result in distinctly different characteristics. For example, while both indexes might claim to be broad,...

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This site is operated by a business or businesses owned by Informa PLC and all copyright resides with them. Informa PLC's registered office is 5 Howick Place, London SW1P 1WG. Registered in England and Wales. Number 3099067.

The increased adoption of ETFs was one of the most striking of all the investment revolutions that characterized the 2010s. A decade ago, many retail investors still considered ETFs to be novel, exotic, and somewhat complicated. And institutions weren’t rushing to embrace ETFs either, as many were already reaping low cost benefits from other index vehicles.

We’ve come a long way. Retail and institutional investors alike have grown comfortable with ETFs and their potential benefits. With a decade of widespread ETF growth in the rearview, we’re looking ahead to what could be in store for ETFs in the 2020s.

By Robin Marshall, director, bond research

The focus by markets and the media on recession risks, that were signaled by the brief inversion of the 10s/2s US yield curve in 2019, failed to recognize the key differences between the 2019 inversion and earlier episodes. In those cycles, when the inverted yield curve proved a reliable recession indicator, the inversion occurred after a period of tightening financial conditions and Fed policy (eg, 2008/09). Furthermore, the inversion persisted for some months, and was matched by inversion of the 30 yrs/2yrs curve, unlike 2019, when it did not, and the Fed eased policy by 75bp, rather than tightened. So there were more differences than similarities between the 2019 inversion and that of 2007/08, or 1999/2000 (see Chart 1).

The key point in Chart 2 is the message from an inverted 10s/2s curve needs to be confirmed in (a) a tightening of financial conditions, (b) an inversion of longer maturities, and (c)...