Some weekend reading … ‘’FTSE 100 FDEW’’ As we have explained previously, the Tempo team draw on strong knowledge and expertise regarding asset management, passive fund management, indexes and ‘smart beta’. Chris Taylor and another member of his team worked at a senior level with HSBC Asset Management, which was one of the early movers and leaders in index tracking funds in the UK. Many years ago, Chris was responsible for setting up the cheapest FTSE 100 tracker for Hargreaves Lansdown. The Tempo team employ a research-based approach to index selection, with their plans using an equal weight, fixed dividend version of the FTSE 100, known as the FTSE 100 FDEW. The FTSE 100 FDEW was developed by FTSE Russell specifically with the aim of helping investment banks offer improved terms (e.g. lower end of term barriers; lower conditions for generating positive returns; and higher potential returns) on structured products. Société Générale have an exclusive license with FTSE Russell to use the FTSE 100 FDEW. Tempo have exclusivity to use the FTSE 100 FDEW in their plans with Société Générale. Citywire recently published a good article by Financial Times columnist David Stevenson, about the issues embedded in market capitalisation weighted indexes and the merits of equal weighting and the potential benefits of the FTSE 100 FDEW used by Tempo. It’s well worth a read: Citywire (8 December 2020): ‘’Factor this into your passive fund choices’’ An older article, covering similar points about the merits of equally weighting the FTSE 100 was published in the past, by ‘Shares Magazine’, and is also worth a read: Shares Magazine (7 February 2019): ‘’Would the FTSE 100 be better equally weighted?’’ https://www.sharesmagazine.co.uk/article/the-case-for-an-equally-weighted-approach-to-investing Tempo provides professional advisers with very comprehensive inputs regarding the FTSE 100 FDEW, including granular analysis of how it performs, including comparing its performance with the FTSE 100. If you would like to see the FTSE 100 FDEW and compare it to the FTSE 100 and FTSE 350 indexes you can do this at the touch of a button through the FT.com: https://markets.ft.com/data/indices/tearsheet/summary?s=GPSOC002:FSI (use the ‘Comparison’ button to add the FTSE 100 and FTSE 350 indexes to the chart (you need to add 2 indexes for it to work): you can also select different time periods, such as 6 months, 1 year, 3 years, etc.) If you look, you will see that the FTSE 100 FDEW has performed very strongly, including through 2020 and the Covid pandemic: noting the usual important point, that past performance is not a guide to the future and should not be relied upon, particularly in isolation. It’s fascinating to understand the full background to the development of indexes, and the academia behind indexes, including the merits of equal weight versions. Tempo provide information about the FTSE 100 FDEW in their plan brochures, in easy-to-understand plain English, for investors in their plans. We are discussing whether we can provide a more detailed general input to Best Price clients in the near future, to highlight more about the interesting background to the development of indexes and the merits of equal weighting. Providing information and views in relation to indexes and products should not be taken as ‘advice’. Providing regulatory ‘advice’ is always specific, following professional consultation regarding the individual’s or entity’s needs. Please also see the important points explained below the signature of this email. enjoy some weekend reading Best Regards Richard and the Best Price FS Team As we have explained previously, Tempo have drawn on strong team knowledge of indexation and a research-based approach to index selection, with their plans using an equal weight, fixed dividend version of the FTSE 100, known as the FTSE 100 FDEW. The FTSE 100 FDEW was developed by FTSE Russell specifically with the aim of helping investment banks offer improved terms ((e.g. lower end of term barriers; lower conditions for generating positive returns; and higher potential returns) on structured products. Société Générale have an exclusive license with FTSE Russell to use the FTSE 100 FDEW. And Tempo have agreed exclusivity to use the index in their plans with Société Générale. However, it should be noted that the FTSE 100 FDEW will perform differently to the FTSE 100, due to the equal weighting and fixed dividend. This means that the returns from plans linked to it might be higher or lower than the returns from a similar product linked to the FTSE 100. Neither equally weighted nor market capitalisation weighted indexes are better or worse than the other. Each offers a different approach and has different merits: risks and returns will be different for each and will depend on the future stock market environment and the performance of the companies in each index. While the fixed dividend can help provide higher potential returns or lower risks for structured products, it can affect the level of the FTSE 100 FDEW negatively, when the fixed dividend is higher than the level of dividends being paid by companies in the index. It is important to carefully consider the current level of the FTSE 100 FDEW, the level of its fixed dividend and the outlook for its future level. Importantly, Tempo have identified the target market for investors in Issue 18 as investors who have a positive view of the future level of the FTSE 100 FDEW, over the medium to long term. Information about the FTSE 100 FDEW can be found in the plan brochures by clicking on the following link: |