State Street Global Advisors, the investment management arm of State Street Corporation, has launched its SSgA Wealth Weighted Global Equities Index Strategy, an index strategy that tracks the FTSE GWA Developed Index. The FTSE GWA index is able to weight stocks based on fundamental financial data rather than their relative size in the market.
The strategy invests in global equities, and historic studies suggest that it can be expected to outperform traditional market capitalisation indices by approximately 2 percent per annum over time. The strategy aims to track the return of the FTSE GWA Developed Index with a tracking error against that index of approximately 1 percent per annum. The index comprises more than 2,000 listed companies across 23 developed markets.
“The strategy is essentially a cross between value and index investing, it captures the best of both worlds by giving investors the potential upside of the value premium with low risk, diversification and low cost,” says Jonathan Shead, a product engineer at SSgA Australia “A number of different simulations using real data over periods from 5 to 40 years indicate this approach to portfolio construction would have produced similar or lower volatility to market cap indices with better long-term returns.”
State Street says that the strategy will provide low-risk, core market exposure and good diversification within many multi-manager portfolios, and would also appeal to less market-sensitive investors such as endowments, charities and longer term insurance funds.