International Indexes Proliferate
September 13, 1999
Standard & Poor's and Dow Jones are currently competing to offer new international indexes.
Dow Jones, in a game of catch-up with the S&P and other index providers, has come out with six new indexes this year, most of them international. They are aimed at generating investment products, such as mutual funds, linked to them. Not to be outdone, S&P has come out with new international indexes as well.
Dow Jones is behind S&P and other firms in establishing indexes, but it aims to catch up, said Michael Petronella, managing director of the Dow Jones Indexes.
"The reason why you're seeing so many new indexes is that the index providers, in a way, are battling for turf," Petronella said. "We've only been in the commercial side of indexing for a little over two years. We've got to be very opportunistic and very entrepreneurial in creating new indexes, getting them to the market quickly because we are very late to the game. Our competitors have been out there many more years than we have."
The firm will introduce more new indexes for Europe and Asia in the next six months, he said.
"I think that if you look at the markets, the U.S. market is definitely more mature from an index fund standpoint than Europe or Asia," said Petronella. "We'd certainly look outside the U.S. for growth in index funds - not that we're abandoning the U.S."
Firms like Dow Jones and S&P charge licensing fees to allow investment companies to create products, like mutual funds, based on their indexes.
The firms tend to make a lot of money off the indexes, through both licensing and providing data on the companies in the indexes, said Andrew Guillette, a consultant at Cerulli Associates of Boston, a mutual fund research firm.
"It can be a very lucrative endeavor," he said.
In creating more indexes, Dow Jones is delving into a largely new area for the company, he said. One thing going for Dow Jones is its "incredible brand recognition" in the financial world, he said.
The Dow Jones STOXX family of indexes, which now has over 100 licensees, was established in early January to take advantage of the introduction of the euro. There are five main indexes in the family, and each is divided into smaller indexes.
The Dow Jones-AIG Commodity Index was established on Jan. 5, in cooperation with American International Group of New York. The two firms jointly market the index which is composed of futures contracts on 20 commodities.
The Dow Jones Internet Index was started on Feb. 17 and now has three licensees, including John Nuveen & Co. of Chicago, which opened the Nuveen Dow Jones Internet Index Portfolio on Aug. 25. The index includes 40 stocks of U.S. Internet companies and seeks to represent 80 percent of the market capitalization of Internet stocks.
The Dow Jones Islamic Market Index was introduced Feb. 9 in Bahrain and has seven licensees. It tracks over 600 stocks from 3,000 companies in 33 countries. Its stocks are chosen by a board of Islamic scholars who screen the stocks so that they adhere to stringent Muslim rules regarding investing.
The Dow Jones Global Titans Index was opened on July 14. It is composed of what Dow Jones considers the top 50 international firms from eight countries. In order to be considered for inclusion on the list, a company has to have an average of 40 percent of its revenue coming from outside its home market. The index now has four licensees. Of those, John Nuveen & Co. introduced a product based on the index on Aug. 25. Nike Securities was expected to introduce a product also in the third quarter, according to Dow Jones.
The newest Dow Jones index family is the Asia Pacific Extra Liquid Series which was introduced on July 27. It is a group of indexes that in includes companies in Australia and Asia. It was designed with help from the Sydney Futures Exchange in Sydney, Australia. It does not have any licensees yet, Petronella said.
Initially, the series will have three country-based indexes, with more to come later. The Australian index will have 35 stocks, the Hong Kong index will have 30 stocks and the Japan index, 100 stocks.
Meanwhile, S&P has introduced five new indexes of its own recently, said Sean Lowry, manager of communications for index services for Standard & Poor's.
They are the S&P TSE 60, which was opened in January and is composed of large cap stocks of the Toronto Stock Exchange; the S&P Euro Index and the Euro Plus Index, which opened last fall, and the S&P TOPIX 150, which opened Aug. 23 and tracks 150 stocks traded on the Tokyo stock market. There will be more to come, Lowry said.