FTSE Short and Leveraged Indices

FTSE Group has created a range of short, short strategy and leveraged indices on the FTSE 100, 250, MIB and STI indices. The new indices allow money managers to exploit the volatility in specific markets by allowing investors to go short the market or gear up, and will serve as the basis for ETFs, benchmarks and other index-linked financial products. The new indices are an extension of FTSE’s range of Investment Strategy indices that are designed to help clients develop strategic investment tools that provide them with alpha returns relative to a standard market cap weighted benchmark. These indices represent an active management strategy wrapped in an index with the advantages of passive management: high capacity, transparency and easy implementation.

The FTSE Short Indices attempt to replicate the inverse returns experienced by an investor attaining the negative daily performance of the underlying headline index, i.e. by short selling the index with a daily rebalance. The cost of dividends and benefit of earning interest for the short position are taken into account in the index calculation of the short indices. The short indices are derived from the existing underlying headline Total Return Indices

The FTSE Short Strategy Indices attempt to replicate the inverse returns experienced by an investor attaining the negative daily performance of the underlying headline index, i.e. by short selling the index with a daily rebalance. The cost of dividends and benefit of earning interest for the short position are taken into account in the index calculation of the short indices, as is the cost of borrowing stock. The short indices are derived from the existing underlying headline Total Return Indices.

The FTSE Leveraged Indices attempt to replicate the returns experienced by an investor attaining a multiple of the daily performance of the underlying headline index with a daily rebalance i.e. investing available funds in the index basket, and borrowing multiples of this to additionally invest in the index. The finance cost of raising capital to reinvest in the index portfolio is taken into account in the index calculation of the leveraged indices.

All these indices take into account the geared returns and the interest income element of running the short position or the cost of financing the leveraged positions.