A number of industry veterans are challenging the supremacy of paid-for indices with the creation of a not-for-profit venture, the Freedom Index.
The company, which aims to provide free indices for wealth managers, is to launch UK and US benchmarks before Christmas. The Freedom Index will begin with basic starter indices based on each market’s top 50, 100, 250, 500 and 1,000 stocks, plus all cap indexes. All indices will be market capitalisation weighted.
There are also further country indices in the pipeline, and firms will be able to submit their own bespoke benchmarks to an ‘index committee’, which will verify the accuracy of the data and include the indices for public use on the website.
The venture is the brainchild of Carl Bacon, previously director of risk control and performance at F&C Investment Management, who also worked as head of performance (Europe) at JP Morgan Investment Management.
Bacon said he had long felt that basic index information should be freely available, and the cost of purchasing of mainstream index data was prohibitive for smaller firms.
‘A good benchmark should be investible, accessible and relevant to the strategy. The accessibility is not available at the moment. Smaller managers simply can’t afford to buy the data, they can’t construct portfolios and that’s simply not appropriate,’ Bacon argued.
‘I really believe this is to the industry’s benefit.’
He is encouraging donations to fund the project and has already received £50,000 from supporters.
Earlier this year Wealth Manager reported that FTSE Group had approached several small and medium-sized investment firms and asked for sums of up to £40,000 to quote FTSE indices in client literature.
The charges sparked outrage and led several firms to abandon FTSE indices altogether.
The Association of Private Client Investment Managers and Stockbrokers (Apcims) negotiated a 50% discount for its members, however not all wealth management firms are part of the trade body, and fund groups are not eligible for membership either.
Unicorn Asset Management is one such firm which has questioned the value of paying to use information which is freely available online.
It has stopped quoting FTSE indices on client literature in response to the demands for payment. ‘We weren’t happy to pay for it,’ client services manager Myri Prior said. ‘I’m sure larger groups don’t have the same issues that us boutiques have. It’s just another cost for little added value.’
One Unicorn fund is benchmarked against the Hoare Govett Smaller Companies index, while the others do not make reference to the FTSE benchmarks on client literature, but managers may look at FTSE indexes internally.
However, other firms have felt compelled to continue using FTSE benchmarks due to a lack of alternatives. David Hannis, director at James Brearley, said his business could not afford all the FTSE indexes but will keep some that he feels are well recognised by private clients.
‘In the end we chose to discontinue using certain FTSE indices because we couldn’t really justify the additional costs versus the benefits we were getting from that information,’ he said. ‘[Some] we felt were very much private client recognised and industry recognised benchmarks so it wasn’t as if there was an alternative.’
Senhouse Capital found there was little suitable alternative to using a FTSE benchmark on its Senhouse Southeast Asian Focus fund and has reluctantly paid the fee. But the group has switched the quoted benchmark on its Senhouse European Focus fund to the DJ Europe Stoxx 600 ex-UK index.
‘In the case of Southeast Asia there are just no other alternatives,’ partner and fomer Wealth Manager cover star Charles Scott Plummer (pictured) said. ‘The FTSE do the most representative index so although we hate paying the £20,000 a year, we felt we had to, whereas in Europe there were so many other benchmarks out there.’