The WM Company is to launch a UK equity index in with individual stock weightings capped at 5% in th...
The WM Company is to launch a UK equity index in with individual stock weightings capped at 5% in the wake of the Vodafone and Mannesmann merger, writes Jenne Mannion.
The All-Share capped index has been developed to help trustees who are concerned with the risk on their UK equity benchmark. The move follows FTSE International's announcement last week that it would introduce 10% capped versions of the FTSE 100 and FTSE All-Share as a base for index tracker funds. Graham Wood, executive director at the WM Company, said: "WM welcomes the recent move by FTSE, however, we feel that this does not sufficiently address the concerns raised by some pension and charity fund trustees."
Many funds currently restrict their investment managers from holding more than 5% of their assets in any individual stock as under trust law it is a requirement that trustees have a duty of care to their beneficiaries when investing pension scheme assets.
Wood said that although some overseas markets have been heavily concentrated for many years, the increasing proportion of the UK stock market being represented by a handful of stocks may present additional risks to funds which do not invest at the full index weighting.
He said trustees and their advisers may need to revisit existing investment benchmarks in addressing this issue.
Wood added: "We don't expect trustees, advisors or managers to move suddenly to a cap weighted index, but there will be a period of careful consideration prior to any change."
The capped FTSE 100 and FTSE All-Share indices aim to provide an option for index trackers faced with the dilemma of accurately tracking the index, within the confines of the 10% rule for unit trusts.
These new additional capped indices will be individually branded and given a different index value to the existing FTSE 100 and FTSE All-Share. The indices will be back dated and values from 1 February 2000 will be made available.
FTSE International plans to introduce the new capped indices in March and in the initial stages, these will be calculated once at the end of each business day. A real-time version of the capped FTSE 100 may be introduced at a later date.
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