The new capped indexes will be calculated in addition to the existing FTSE 100 and FTSE All-Share indexes which will remain unchanged. The capped indexes will be calculated on an end of day basis. The FTSE 100 and FTSE All-Share will continue to be calculated on a real-time basis.
The new indexes will be called the FTSE CAP 100 and FTSE CAP All-Share. Any single stock in these new, entirely separate indexes will be capped at 10%. Capped stocks will be reviewed, and the indexes rebalanced, on a quarterly basis. The rebalancing will take place at the same time as the regular quarterly review after the close of business on the third Friday of each quarter.
FTSE consulted leading figures in the investment fund market to gauge market consensus before making its decision.
Mark Makepeace, Managing Director of FTSE, commented: "Market concentration has for many years been an issue in some markets but now, due to government privatisations and cross-border mergers, affects most markets worldwide. Investors with funds focused on a single market have become worried by the higher levels of risk that market concentration causes and have been examining the options available to them to reduce the risks inherent in investing in markets with high concentrations.
The long term solution to the problem of concentration for European investors is likely to see funds move away from using highly concentrated domestic indexes to more diversified international indexes, such as the FTSE World (Europe). FTSE also introduced the FTSE Multinationals index series in October last year as a potential solution to issues arising from the creation of large multinational companies which can dominate domestic country indexes. Several large funds have already adopted the new indexes as their benchmark.
The alternative solution is to cap the weighting of the largest companies in an index." Historical values for these new indexes will be calculated back to 1 February 2000.
Anybody requiring these index values or the historical values should contact FTSE by phone (+44 (0)20 7448 1810) or e-mail (info@ftse.com) following the launch of these new indexes on 8 May 2000.
