FTSE Group and the EDHEC-Risk Institute launched a series of equity indexes today that rely on Sharpe ratios to provide optimal risk-return performance, confirmed FTSE spokeswoman Mittal Shah.
The FTSE EDHEC-Risk Efficient Index Series aims “to improve the risk-reward efficiency” over traditional indexes weighted by market capitalization, Ms. Shah said in an e-mail response to questions.
FTSE will estimate the riskiness (based on past and current volatility) of each stock in the FTSE All World index and assign it a risk-return profile based on its Sharpe ratio, which is outperformance divided by volatility. Then, each index will be constructed using the best weighting of those profiles for the geographic region it covers.
The indexes will be rebalanced quarterly and be available in versions focusing on the U.S., the U.K., Europe, Japan and Asia/Pacific.
Mark Makepeace, FTSE Group's chief executive said in a press release: “Increasingly, investors are looking to diversify their core passive funds across a range of benchmarks weighted by market cap and other weighting schemes.”