FTSE Expandsd Diversification Based Investing Index Series

November 1, 2011 (PLANSPONSOR.com) -  FTSE Group and QS Investors, LLC, announced the expansion of the FTSE Diversification Based Investing (DBI) Index Series to include emerging markets.  

Like the FTSE DBI Developed indices, launched in September 2010, the FTSE DBI All Emerging Markets Index is non-market capitalization weighted.  Instead, the FTSE DBI indices are weighted to promote diversification across countries and industry sectors.  They seek higher absolute and risk-adjusted returns compared to market cap-weighted indices with less downside risk.  The investment philosophy behind the FTSE DBI Index Series is that both geography and industry are the primary drivers of global equity risk and return; and that market sentiment can lead to momentum effects, causing concentration risk in market-cap weighted indices.  According to the announcement, a macro diversified portfolio helps to avoid this concentration risk and should lessen downside risk.  Using a transparent, rules-based formula, the indices diversify exposure by re-weighting countries and industries to avoid concentration risk and momentum effects.  Risk assessment occurs annually and index rebalancing occurs quarterly. 

The index is derived from the FTSE All Emerging Markets Index Series, which is market-cap weighted and made up of large and mid-cap companies within Advanced and Secondary Emerging Markets, as categorized by FTSE’s transparent, rules-based Country Classification Process.

“DBI seeks to address macro and behavioral inefficiencies by developing a diversified exposure to macro risk factors, so expanding this approach to emerging markets is a natural extension of the FTSE DBI Index series,” said James Norman, President, QS Investors, LLC, in the announcement. “With so much uncertainty in global markets, we believe adding a diversified approach to emerging markets exposure can potentially add value to investors’ portfolios.”