Market consultation

FTSE Private Investor Index Series
Methodology

Important Information
The proposals set out in this consultation document are included in order to gather feedback andmay or may not result in changes to the FTSE Private Investor Index Series.

ftserussell.com

February 2017

FTSE Private Investor Index Series
Methodology Consultation
Responding to the Consultation
Please submit your response to the questions included in this consultation online athttps://www.surveymonkey.co.uk/r/BPFG7GZ
If you have any questions about this survey, or if you encounter any technical issues, please contact
rpawson@FTSERussell.com.

Introduction
As part of our commitment to deliver best possible solutions for our clients, we have reviewed the FTSE
WMA Private Investor Index Series and propose a series of enhancements to be implemented in the second
half of 2017. The renaming of the index series to the FTSE Private Investor Index Series effective 1 March2017 is not the subject of this consultation. The purpose of this consultation is to gather feedback on theproposed enhancement plan. The proposal set out in this consultation document is included in order togather feedback and may or may not result in actual changes to the index series.

Current Index Series

Proposed Index Series

FTSE WMA Private Investor Index Series

FTSE Private Investor Index Series
FTSE UK Private Investor Ultra Conservative Index
FTSE UK Private Investor Conservative Index
FTSE UK Private Investor Balanced Index
FTSE UK Private Investor Growth Index
FTSE UK Private Investor Ultra Growth Index
FTSE UK Private Investor Income Index
FTSE UK Private Investor Global Growth Index

FTSE WMA Stock Market Conservative Index
FTSE WMA Stock Market Balanced IndexFTSE WMA Stock Market Growth Index
FTSE WMA Stock Market Income Index
FTSE WMA Stock Market Global Growth Index

The proposed methodology changes for which we would like to gather your feedback can be summarised asfollows:
1) Method for deriving asset class allocation percentages evolves from the current peer group survey
approach to a proposed data driven approach based on the average allocations of public funds
available to UK individuals

FTSE Russell | FTSE Private Investor Index Series Methodology Consultation22) Index characteristics based on risk levels3) Expansion of the number of indexes from 5 to 7 to include Ultra Conservative and Ultra Growth4) Expansion of the range of asset classes to include UK corporate bonds

I. Method for Deriving Asset Allocation Averages
Currently, a quarterly survey is conducted to generate average asset allocations for the 5 indexes.
We propose to use databases of publically available UK funds to derive average asset allocations for eachindex, including Open End Funds, Closed End Funds and Exchange Traded Funds. The aim of thisapproach is to provide increased transparency and overcome challenges such as low sample size which
could occur with the survey methodology.
Current methodology

Proposed methodology

Quarterly peer group survey.

Derive average allocations from funds that are
publically available to UK individual investors.

1. Can average allocations derived from funds that are publically available to UK individual
investors provide a relevant benchmark for your mixed asset portfolios?
YesNo
I don’t have a strong opinion

2. In relation to Q1 above, which types of public funds (by fund structure) should be included in oursample for calculating asset allocation averages for different portfolios? Please select all thatshould be included.
Should be Included in Sample
UK Open Ended Funds
UK ETFs
UK Closed End Funds

3. In relation to Q1 above, which types of public funds (by fund investment scope/asset class)should be included in our sample for calculating asset allocation averages for different
portfolios? Please select all that should be included.

Should be Included in Sample
Fixed Income Funds
Equity Funds
Allocation Funds
Property Funds

FTSE Russell | FTSE Private Investor Index Series Methodology Consultation

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II. Index Characteristics Based on Risk Levels
With the existing methodology, the indexes within the series are not specifically defined. For example, theConservative Index is “… designed to reflect the portfolio of a client requiring a conservative approach fromtheir investment.”
We propose that index characteristics primarily reflect the risk level of the funds. The aim of this approach isto better reflect the practice of wealth managers and financial advisors to recommend investment choices
based on investor risk tolerance.
Specifically, FTSE Russell proposes to use risk criteria (primarily historical realised volatility based onstandard deviation of returns, supplemented with downside risk thresholds if necessary) to select funds thatwould represent the Conservative, Balanced, and Growth Indexes.
For the Income Index, FTSE Russell proposes to use the top 20% highest yielding funds from the publicfunds that are used to calculate the average allocations for the Conservative, Balanced, and Growth
Indexes, with additional screening based on dividend payment history and maximum drawdown to eliminate
funds with inconsistent income payment history and funds that exhibit high yield percentage primarily due tofalling fund prices.
For the Global Growth Index, FTSE Russell proposes to use the averaged Developed Markets vs. Emerging
Markets Equites allocations of the publically available equity funds.

4. Do you agree that a risk based approach is appropriate for characterising Conservative,
Balanced, and Growth Indexes?
YesNo
I don’t have a strong opinion

5. Do you agree with the proposed methodology for the Income Index?
YesNo
I don’t have a strong opinion

6. Do you agree with the proposed methodology for the Global Growth Index?
YesNo
I don’t have a strong opinion

FTSE Russell | FTSE Private Investor Index Series Methodology Consultation

4III. Expansion of Indexes in the Series
Currently the series includes 5 indexes representing Conservative, Balanced, Growth, Income and Global
Growth asset allocations. With the introduction of the risk-based approach, FTSE Russell has theopportunity to expand the indexes to ensure that the series can be more representative of the risk categories
seen in the market.
Specifically, FTSE Russell proposes to add 2 new indexes: an Ultra Conservative Index and an Ultra
Growth Index.
Current methodology (5 indexes)

Proposed methodology (7 indexes)
Ultra Conservative (new): designed to reflect theaverage asset allocation of the funds with historicalreturn volatility levels at the lowest range of thesample group, and meet additional maximum
drawdown criteria.

Conservative

Conservative

Balanced

Balanced

GrowthGrowthUltra Growth (new): designed to reflect the averageasset allocation of the funds with historical return
volatility levels at the highest range of the samplegroup.

IncomeIncomeGlobal Growth

Global Growth

7. Do you agree that FTSE Russell should add in the Ultra Conservative Index?
Agree
Do not agree
I don’t have a strong opinion

8. Do you agree that FTSE Russell should add in the Ultra Growth Index?
Agree
Do not agree
I don’t have a strong opinion

9. Are there any other indexes FTSE Russell should consider introducing?
Write-in Answer _____________________________________________________________________FTSE Russell | FTSE Private Investor Index Series Methodology Consultation

5IV. Asset class representation
FTSE Russell proposes to adjust the asset class coverage to best reflect the UK wealth management
industry. Specifically, we propose to introduce additional bond asset classes and to remove the current
Hedge Funds asset class.

Current asset classes

Proposed asset classes

UK Equities

UK Equities

World Equities

World Equities

 Developed ex-UK World Equities

 Developed ex-UK World Equities

 Emerging World Equities

 Emerging World Equities

Bonds – UK Gilts

Bonds – UK Gilts
Bonds – UK Corporates
Bonds – Global ex UK
Bonds – UK Inflation Linked

CashCashHedge Funds
Commercial Property

Commercial Property

10. How important are the current asset classes and proposed new asset classes needs in relation toyour mixed asset investment?

Asset classes

1=Not
Important2=
SomewhatImportant3=
Important4=
Very
Important

I don’t havea strongview

UK Equities
World Equities
 Developed ex-UK WorldEquities
 Emerging World Equities
Bonds – UK Gilts
Bonds – UK Corporates
Bonds – Global ex UK
Bonds – Inflation Linked
Cash
Hedge Funds
Commercial Property

FTSE Russell | FTSE Private Investor Index Series Methodology Consultation

611. For the various types of bonds, what maturity ranges are most relevant to your investment
needs? Select all that apply.

0-5 Years

5-10 Years

10-20 Years

Asset classes>20 Years

I don’t havea strongview

Bonds – UK Gilts
Bonds – UK Corporates
Bonds – Global ex UK
Bonds – Inflation Linked

12. How does your firm currently obtain commercial property exposure? Select all that apply:
Invest in commercial property funds
Invest in various commercial properties directly
Invest in listed real estate companies
Invest in REITs
We do not currently invest in commercial property

13. For commercial property, FTSE Russell proposes replacing a direct property index with a UKREITs index. Do you agree with this approach?
Yes
NoI don’t have a strong opinion

14. Are there any other asset classes, not listed above, that you would like FTSE Russell toincorporate into the Series?
Write-in Answer _____________________________________________________________________

Thank you for your participation in the survey.

FTSE Russell | FTSE Private Investor Index Series Methodology Consultation

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8About FTSE Russell
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