FTSE Russell

FTSE Russell is the provider of some of the most popular market cap indices used in three key retail structured products markets - the UK ( FTSE 100), Italy (FTSE MIB) and the US (Russell 2000).

The footprint of the trio however goes beyond their domestic market - The FTSE 100 features in more than 33,000 live products across markets including over 21,000 tranche based products and over 12,000 flow and leverage products with combined assets worth an estimated US$100 billion.

The FTSE MIB appears in the underlying of over 11,000 live products worth an estimated US$5 billion; and the Russell 2000 is part of the underlying on 25,000 live products worth an estimated US$85 billion, which shows its appeal for investors seeking access to one of the most comprehensive representations of the investable US market and its segments.

According to the index provider, the Russell US equity indices have over US$12 trillion in AUM.

“These indices very much remain a core part of our offering, but we have the capability to develop investment overlays on some of the world’s highest quality indices and we can deliver them fast,” said Maxime Adam, head of sell-side Emea, index investments group at FTSE Russell, adding that notional for these indices has grown over the last three years and even more so last year with numbers for Q1 significantly up, especially on the Russell 2000.

“Quite a few banks are providing strategies on the Russell 2000 - some are going long on the index and others are shorting the index or shorting part of Russell because of what has recently happened with some small banks in the US and pitching that to their clients as strategies,” Adam said.

Demand for FTSE Russell’s flagship market cap indices in the UK and Italy over the last two years has remained “very strong” and was boosted by “very high demand for overlay strategies”, mainly on the FTSE 100.

“Decrement and target volatility indices are growing very fast. Decrement has grown 300% in the last three years on the FTSE 100; target volatility strategies are also getting some traction,” said Adam.

FTSE Russell is working with several partners that are doing single stock decrement indices since Q2 21 which had some success in various parts of Europe.

“We mainly see demand for indices on French stocks, Swiss stocks and also on financial and energy stocks on the back of market trends such as higher interest/inflation, and the energy crisis,” said Adam.

FTSE Russell market cap indices - sales and issuance 2021-2022

Russell decrement indices - sales and issuance

When it comes to industry sector exposure demand remains stable “but it seems to be mostly banks and energy stocks that trade”.

“We’ve had conversations about healthcare, metal and mining and we are also talking about more niche sectors like agriculture, or forestry, but in terms of numbers and volume it is very much banks and energy that people ask for,” said Adam.

“It’s good to have a good story. However, the demand is more for benchmarks rather than complex indices. People tend to go for safe options during market downturns.”

According to Adam, the rising interest rates environment has not had an impact on the demand for decrement indices while risk control has gained renewed momentum.

“We still see demand for decrement [and] target volatility is something we are seeing now too,” he said.

“We have live indices on the FTSE 100 and Russell 2000 with target volatility. There will be products on those indices very soon. Markets continuously change, higher interest rates, inflation, energy crisis etc and drive the demand we’re seeing from our clients.”

Megatrends is still something that is very high up in conversations, but thematics are becoming increasingly important, including themes like climate change, cloud computing, AI, machine learning, and healthcare.

“[We] see demand here and there for digital or even AI, but the bulk of the volume is more in variations of sector or benchmark indices rather than megatrends,” said Adam. “Growth will come from flexibility, hight quality and quick delivery of exposure to new trends in both underlying indices and overlays.”

FTSE Russell is close to launch the new FTSE 100 Risk Adjusted ESG, which will be its flagship UK ESG index and is also working on bringing the Transition Pathway Initiative (TPI) dataset to Continental Europe following its success in the UK.

The index provider is also seeking to build out on the success of the Russell indices and expand its offering with thematics, and ESG but also overlays and real time.

“Russell is interesting - it is a very strong brand in the US,” said Maxime. “We see big numbers for the Russell 2000 and it’s our index with the largest notional.

“In Europe, historically, there was probably a bit less demand than in the US but talking to clients, it seems that there is more appetite and demand for it. We are building out on the success on the Russell indices to expand our offering.”

Last year FTSE Russell launched the Russell 2000 ESG “which is something that could work and resonate well with investors in Europe”.

“We are also looking at sector and thematic indices on the Russell indices,” said Adam