P/T GLOBAL INDEXES

Page Summary: Our proprietary indexes, developed for global asset allocation and market timing

Check List
Price Only
End Month Calculation
History since end 1972
31/12/1994 = 100
MV weights for shares    GDP weights for bonds
Annual rebalancing

Global Weights
See table below

• GDP Output Gaps
• Real Effective Exchange Rate Indexes
• Long Term Government Bond Indexes *
• Regional Indices for all Asset Classes
• Stock Market Indexes *
• Style Investing Indexes
• Earnings per Share Indexes
• Global Business Confidence Index

These indexes are not intended to be used as performance measurement for actual funds or portfolios. They are intended to provide a means of generating Best Guesses regarding the outlook for different markets in terms of direction and order of magnitude.

P/T Ten Year Government Bond indexes are reciprocals of the yields. Country bond indexes are weighted by GDP, rather than by market capitalisation, to make analysis compatible with economic aggregates. Bond price indexes represent notional 10 year government bond performance, rather than a spectrum of all maturities and can therefore be expected to act in a more volatile manner than actual portfolios. For simplicity, P/T indexes ignore the minimal damping effect of the distant maturity date on fixed-interest securities, and do not reflect changes in risk premiums for lower grade bonds issued in the same currency.

Conversions of legacy currencies into Euros has been made at the varying historic exchange rates with US$

For foreign currency, indexes of real effective exchange rates have been created based on movements in nominal exchange rates and changes in consumer price indexes, These are weighted by the average of exports and imports to and from leading trading partners, and are rebased every five years. On average these partners represent around two thirds of trade for each country. The global benchmark is represented by IMF Special Drawing Rights (SDR). Users should note that data for early years in long time series may be liable to significant distortion owing to structural changes in economies and high levels of past inflation. Data prior to 1980 is shown for completeness, but is not used in quantative analytic modelling. Comparisons since 1980 with similarly calculated indexes produced by the IMF show an average divergence of only 0.4% per annum compound for 20 countries on which comparable data is available.

These indexes show total returns on portfolios invested equally across six asset classes. These are Cash, Domestic Bonds, Foreign Bonds, Domestic Shares, Foreign Shares and Real Estate. The indexes are calculated monthly on the basis of continuous re-weighting and are intended to provide an average against which decisions on the comparative merits of each asset classes can be made. They are not intended as performance benchmarks. Indices for component asset classes are derived from other PIT indices which are in turn derived from leading national indexes in the constituent countries.    

Stock Market Indexes

A typical P/T Stock Market Index may indirectly represent 90% or more of each country’s market capitalisation whereas institutional benchmark indexes such as MSCI or FTSE are more representative of the top 75%.  Whereas P/T regional and global stock market indexes are based on established broad market country indexes, which are listed below, the selection of shares in benchmark indexes is limited by liquidity constraints appropriate for institutional investment. Comparisons with MSCI, since the latter started in 1982, show that P/T Europe and Global stock market indexes have underperformed by only 0.8% and 1.0% on average annually. This is largely due to the under-performance through much of the period of smaller companies that have a greater weighting in broad market country indexes.

Earnings per Share time series have been derived from published PE ratios and broadly-based national stock market indexes to provide an estimate of current year EPS for the whole market. Appropriate lagging adjustments have been made. Regional and Global time series are created by weighting constituent country series by market capitalisation.

The PIT regional and global averages are currently based on the national stock market indexes listed below that are produced by individual bourses or other sources for individual countries. To maintain consistency, wherever possible these are market capitalisation weighted, price-only indexes that exclude reinvested income. Other compatible indexes may be fitted to the currently used indexes so as to create longer runs of historical data.

Style Investing Indexes

These are intended to act as a barometer for changing fashions in stock market investment. As far as possible they are assembled from compatible national sources and represent price-only geometric averages of broad market trends. However to generate long historical time series near matches may be chained to the beginning of the current data series. All indexes are rebased at year end 1994 = 100 for comparability.

Weights

The most recent rebalancing exercise took place as at 31/12/1999. These are the current weights of the geographic indexes. Style Indexes carry the same regional weights.