The number of planned or existing international indexes is proliferating as vendors scurry to keep up with, and even create, new international investing horizons.
From Goldman, Sachs & Co. in New York to Wilshire Associates in California, more organizations are providing or are designing international investing indexes. In many cases, they aim to attract and keep clients for their core businesses, such as brokerage or asset management, and generally, to enhance their firm's name recognition in international investing.
Their new or improved indexes range from barometers of non-U.S. small stocks' performances to yardsticks incorporating both emerging and developed markets. More indexes of non-U.S. value and growth stocks' performances also are now on the drawing boards; so are refinements of existing products, such as emerging markets indexes.
The new developments include:
Goldman, Sachs has unveiled its series of 10 indexes in its Goldman Sachs Extended Global Market Indices. Included are four new regional indexes and six indexes that are expansions of the FT-Actuaries' World Indices.
In September, the International Finance Corp., Washington, will expand its investible and global series of emerging markets indexes by offering a tradable emerging markets index series.
London-based Baring Securities, which since 1992 has provided an array of emerging markets indexes, recently added four new stand-alone benchmarks. These track the markets of South Africa, China, India and Colombia.
Consultant Wilshire Associates, Santa Monica, Calif., expects to expand into international indexes.
Of course, in the United States, the Morgan Stanley Capital International Europe Australasia Far East Index remains the most popular among international investors. But even it has undergone changes, especially additions, as international investors' horizons have expanded. Among other new benchmarks this year, MSCI began offering an index of 39 countries in its combined EAFE-plus-Emerging Markets Global Index, and an index of 38 countries in its EAFE-plus-Emerging Markets Free (investible) Index. In addition, in February, MSCI launched an array of regional and emerging markets country indexes. Several more country indexes, including one for South Africa, are expected in the near future.
The centerpiece of the Goldman Sachs series is a composite index of 46 markets, including 24 from developed countries and 22 representing emerging markets. This index of 2,909 securities combines the FT-Actuaries' World Index for developed markets and the International Finance Corp.'s investible indexes for emerging markets. Its non-U.S. component - the extended Euro-Pac index - includes 34 countries.
The International Finance Corp.'s emerging markets index series will consist of: the IFC100, comprised of 100 very liquid, generally large-capitalization stocks in 13 emerging markets; the Asia50, 50 very liquid, large stocks in Asian emerging markets; and the Latin50 indexes, of highly liquid, large Latin American equities. According to Iyad Malas, manager of the IFC's Emerging Markets Database, the new tradable series will, among other advantages, help traders create derivative investment strategies in emerging markets.
In addition, the IFC will continue to expand its coverage of markets. For example, this summer, it expects to begin offering a stand-alone index of South Africa's market and one for the Czech Republic's market early next year.
Baring Securities, in addition to the four indexes already added, is expected to add four more stand-alone indexes are expected in the near future to cover markets that include Poland and Hungary, said Stephen Batzell, a Baring vice president. According to Mr. Batzell, the Baring emerging markets indexes emphasize the importance of liquidity and investibility of their components.
Wilshire Associates is working on creating indexes that measure the performance of non-U.S. small-cap stocks and non-U.S. growth and value stocks. Wilshire hopes the three indexes will be ready by year end, said Steve Nesbitt, senior vice president. However, he said the firm isn't trying to compete with MSCI or other "big players" who are "doing a good job," but it wants to address unfilled niches in the indexing of international investments.
Another consulting firm, Richards & Tierney Inc., Chicago, "has a commitment to developing indexes internationally," said Thomas Richards, managing partner. Within six months, the organization - which already has an array of indexes for domestic investments - expects to complete an international database "that contains all the securities we might see in any (international) manager's portfolio," said Mr. Richards. After that, "step two would be (to acquire) risk modeling capability so we can then build (a variety of international) indexes. We expect to come out with similar indexes internationally to what we have domestically," covering "different types of securities" and management styles, he explained.
More than two years ago, money manager Parametric Portfolio Associates Inc., Seattle, created its most recent international index -a yardstick of 20 developing countries. Since 1989, however, the manager has had a wide range of other country, regional and global indexes, and within them, separate indexes measuring market segments (small, medium and large stocks) and investment styles (value and growth). This information "is available to anyone who wants to be on the mailing list for it," said Managing Director Mark England-Markun. However, this year, the firm has decided to promote these indexes more heavily, he said.
In the spring of 1993, Boston International Advisors Inc. completed work on its two composite indexes that track international value and growth stocks. The firm has "recently been thinking about whether or not it should sell this information," reported Pamela Appell, an associate at the firm.
Other organizations, including New York-based Dow Jones & Co. and Salomon Brothers, also offer international indexes. And although it remains unclear just how far the developments will go, many investors and consultants welcome the current improvements. To them, the standard-bearing EAFE is too limited in an age when investors seek more diversification overseas.
Created more than 20 years ago, "EAFE was a good starting point," noted Gunter Ecklebe, director-international asset consulting, Frank Russell Co., Tacoma, Wash. Moreover, the recent creation of extended developed and emerging markets indexes "is a big step" forward, he said. But as more money flows abroad into different strategies, "a lot more is needed in terms of index cuts" and design, he believes.
To consultant Reza Vishkai, international research director of Rogers Casey & Associates, Darien, Conn., "the real issue historically with international benchmarks have been their (heavy) Japan weighting." Since active managers often underweighted Japan, the index became a poor representative of managers' strategies. But where indexes are expanded - to include, for example, emerging markets - the Japan exposure shrinks, and the index generally better reflects how active managers are investing, he holds.
For now, that may only be partially true. For example, MSCI's 39-country EAFE-plus-Emerging Markets Global Index contains an 11.62% emerging markets exposure, compared with the meager 1.95% emerging markets weighting in Goldman, Sachs' extended 34-country non-U.S. index.
(The difference is notable because, consultants say, many of the extended EAFE-like portfolios contain an exposure to emerging markets of at least 5% to 10%.)
However, in the EAFE-plus-EMG, Japan still towers over other countries with a 42.84% exposure. In Goldman, Sach's extended Euro-Pac index of 34 countries, Japan comprises an even heftier 49.04%.
