INDEX SERIES FTSE PUBLICATIONS

FTSE Custom

FTSE FTSE Group (FTSE) is a global leader in the creation and management of indices. FTSE calculates and manages a comprehensive range of equity, fixed income, real estate, currency, commodity and non market-cap indices, on both a standard and custom basis. The company has collaborative arrangements with a number of stock exchanges, trade bodies and asset class specialists around the world.  FTSE indices are used extensively by market participants world-wide for investment analysis, performance measurement, asset allocation, portfolio hedging and for creating a wide range of index tracking funds, derivatives and ETFs.  FTSE is owned by London Stock Exchange Group.

www.ftse.com

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Overview

Since 1995 FTSE Group has set the bar for international benchmark calculation, with industry standards such as FTSE 100, FTSE MIB, FTSE China A50 and FTSE Emerging Market Indices. With over $3 Trillion benchmarked to FTSE indices, the market has validated FTSE’s index construction, calculation and governance processes in every major sector across global capital markets. FTSE brings this award winning approach to the creation of custom indices, delivering bespoke real-time and end of day indices across all asset classes and weighting schemes. From tailored performance benchmarks, to sophisticated foundational valuation metrics underlying derivatives and structured products, FTSE provides the most comprehensive and innovative custom index service available in the market today.

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FTSE Custom provides clients with an index specific to their mandate using the expertise and partnerships unique to FTSE.

As with all FTSE indices, you can be assured that your custom index will be underpinned by FTSE’s world class index design standards of transparency, clarity, independence and technical excellence.

The FTSE Difference

AuthoritativeWe have been creating indices since 1984. By being at the heart of the markets we serve, we understand the needs of our clients and deliver the right products to help them meet their objectives.

InnovativeFTSE’s multi-faceted range of data, research and quantitative capabilities means we can create a cutting edge index design for you.

Consultative Approach FTSE’s dedicated Custom index team works closely with clients to understand precise technical requirements and deliver an appropriately tailored index. From initial consultation, through design, delivery and on-going support, FTSE offers a comprehensive end-to-end service.

TransparentFTSE indices are managed according to publicly available sets of rules, and any index changes are in accordance with these objective parameters. This helps market participants predict how FTSE will deal with changes to indices, helping to minimise the cost associated with managing funds and products based on FTSE indices.

ResponsiveCollaborative and supportive, FTSE provides an end-to-end service for Custom index clients, combining a collaborative approach to product creation with knowledgeable 24 hour support.

Strong GovernanceIndependent committees govern our indices to ensure that they meet market needs and that index ground rules are correctly applied and adhered to.

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Custom

Customisation

Your dedicated FTSE Custom specialist will provide a consultative service to fully understand your needs. The Custom team will then design and create an index to meet your specific requirements, whether based on an existing FTSE index, or from a client-defined universe or methodology

Tailored Solutions

We support clients seeking new index concepts which are supported by robust classification systems, calculation infrastructure and index governance. We customise indices for asset owners and fund managers who require bespoke performance measurement and reporting tools, for financial product providers seeking to offer new passive investment products, and for institutions worldwide who require new ways to view and measure global markets.

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Custom indices are increasingly required by investment professionals who seek bespoke, independent solutions to the challenges faced in their daily workflow. The following are some of the reasons for which clients come to FTSE seeking customised indices.

The Growth of Custom Index Services

Provides tools which can be used to address gaps in

existing passive exposures

Manage FX risk in global indices via custom currency hedges

Blended or multi-asset benchmarks

Customised capping factors provide a tool for clients to help manage exposure to countries, sector or companies.

Asset Owners

Customised measures of risk

and performance

Create short or leveraged indices

New asset allocation guidelines

White labelling

Trading & Portfolio Management

Creation of innovative new products

with independent underlying index

White labelling of existing FTSE indices

Independent calculation of third-party index

methodologies

Product Issuers

Maintain exposure to a given market whilst managing exposure

to ESG risks.

Apply Shariah screens to pre-existing or custom

build indices

ESG

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Custom

FTSE calculates custom indices across all asset classes, weighting schemes and sectors on a real-time and End of Day basis. We construct indices using a building block approach, enabling clients to select from a broad range of asset classes, screening criteria, weighting approaches, currencies and calculation options to obtain an index which meets their specific requirements.

Custom Solutions for All Asset Classes

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The specialist FTSE Custom team will collaborate with you to understand your exact requirements and create an appropriate tailored outcome to meet your specific brief.

From initial consultation through to design and on-going local maintenance and support, FTSE offers a comprehensive end-to-end service.

With your own dedicated Custom specialist, you will have a constant point of contact to ensure that your enquiry is efficiently managed to deliver the right solution at the right time.

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RequestWork with you to understand your precise requirements

Definition & DesignAgree specifications and then design and construct your custom benchmark – i.e. index methodology, calculation frequency, review frequency, calculation currency etc.

Steps to your Custom Index

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Custom

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On-going SupportProvide on-going maintenance and support. Full post index live support from clients services, operations, sales teams, custom specialist, marketing, PR

Index LiveDelivery of history and End-of-Day products including values, constituents, corporate actions etc.

Index Building & TestingTest and refine the solution

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Classification.

Industry classification is determined according to the Industry Classification Benchmark (ICB), a globally recognised standard operated and managed by FTSE for categorising companies and securities. Over 75,000 securities are classified by ICB, providing an unrivalled data source for global sector analysis and a standardised basis for constituent selection and product design.

icbenchmark.com

75,000Number of securities classified by ICB

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Custom

Transparency Independence Experience Reliability

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The following case studies provide an insight into the collaborative approach used to create the investment tools required by clients.

Challenge:Develop a unique capping methodology to produce a more evenly distributed portfolio based on a specific underlying universe. The objective is to limit risk by reducing exposure to dominant stocks by applying the same capping criteria to each stock. Additionally, the sum of all stocks with weights over 5% must not exceed 25% of the total.

Outcome:An investment fund launched off the success of the back tested index.

Case Study One Buy-Side Market Response.

Solution:Build a capping methodology model providing the optimum capping factor at each review point and calculate the index to the specific requirements. FTSE back tested the methodology over a 5-year history against the performance of an uncapped index. This enabled the index to be better distributed and comply with the investment mandate.

Case Studies1.

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Custom

Outcome:• FTSE Developed Europe ex Cluster Bomb Index

• FTSE Developed Europe ex Cluster Bomb (Euro Hedged) Index

These indices are reviewed semi-annually with FTSE providing ongoing maintenance and support to F&C.

Case Study Two Pension Fund Custom Index: AP7

Outcome:• FTSE AP7 Un-hedged Composite Index

• FTSE AP7 World Americas Index

• FTSE AP7 Asia Pacific Ex-Japan Index

• FTSE AP7 Europe Index

• FTSE AP7 Japan Index

• FTSE AP7 Hedged Composite Index

Challenge:AP7 required a series of indices excluding a list of stocks whilst ensuring the maintained exposure to developed, emerging and secondary emerging countries. The indices would also need to be hedged into Swedish Krona and limit exposure to currency risk.

Solution:FTSE’s solution included 4 regional indices and 2 composite indices (one hedged, one un-hedged) which combine to create an overall index. Country selection was based on FTSE’s standard country classification approach.

Challenge:F&C required a responsible investment index which excluded companies involved in the production and supply of landmines and cluster bombs. The index was to include constituents from the Developed European region, and also to be hedged in Euro.

Case Study Three ESG Solution

Solution:We worked with F&C to create an index matching their exact mandate, filtering constituents from the FTSE Developed Europe Index and hedging the resulting sub-set to Euro.

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Case Studies

Outcome:• FTSE 100 5% Risk Target Excess Return Index

• FTSE 100 10% Risk Target Excess Return Index

• FTSE 100 15% Risk Target Excess Return Index

• FTSE/JSE Top 40 10% Risk Target Excess Return Index (Capital & Total Return)

• FTSE/JSE Top 40 15% Risk Target Excess Return Index (Capital & Total Return)

• FTSE/JSE Top 40 20% Risk Target Excess Return Index (Capital & Total Return)

Challenge:A major global investment bank wanted to integrate a quantitative investment strategy to existing headline FTSE indices which would enable investors to gain a risk targeted exposure. FTSE was also asked to provide on going independent index calculations and incorporate governance best practices into the new indices.

Solution:Our quantitative development team worked closely with the bank to advise them on how best to incorporate their approach within an index structure. We went through an extensive period of testing and validation and the resulting approach was reviewed and passed by FTSE’s governance committees. Finally, the client requested a black-label solution whereby the indices would reflect their strategy whilst adopting an official FTSE name.

Case Study Four Quantitative Solution

4.

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Custom

Outcome:• All files follow a specific Custom approach for

the client

• Implementation of the new product implemented within days

• Files compatible with third party vendors

Case Study Five Outsourcing internal calculation

Outcome:• An investment fund launched off the success

of the back tested index

Challenge:A London based asset management firm wanted to implement a global diversified value weighted strategy based on an existing proprietary index. FTSE was tasked to set up a suite of regionally based customised indices, undertake full replication of index reviews and methodology and maintain daily corporate actions in line with overall index objectives.

Solution:FTSE built a best in class automated model for the quarterly rebalance of weights and stocks, fully replicating the clients objectives and method. Dedicated teams of Operations specialists provided 24 hour client support, including maintenance of daily corporate actions, from 3 hubs: London, New York &Hong Kong.

Challenge:A client was loading thousands of files daily via an automated process which was costly and time consuming to set up and maintain.

• Common files across all index classes

• Specific fields to be populated within all products

• Standard automation of future file requests

Case Study Six Bespoke Product Files

Solution:• One to One meetings with the business head and

internal development team resulted in an agreed specification for all new and existing files.

• Internal product specification suite was specifically designed for the client

• Future indices migrated directly to new file format

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Tax.

Working with a global tax specialist FTSE offers over 7 different resident tax stances* which can be applied to any FTSE Standard or Custom Index, adjusting the dividends paid on an index to correctly reflect the tax status of a specific client, providing a more accurate and representative benchmark from which to derive performance.

* Withholding (Max rates), Australia UCIT, Hong Kong MPF, Netherlands, UK Pension, UK UCIT, USA UCIT

1,500Number of tax adjusted indices calculated by FTSE

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Custom

Currency Hedging.

FTSE offer clients the tools to measure and assess embedded currency exposure through customised real time and end of day currency hedged indices. Currency hedging can be applied to any asset class with either a custom hedge applied to an existing FTSE index, or included as a feature during the design phase of a custom index build. Indices can be hedged to a wide range of individual currencies, or to currency baskets.

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Award Winning

Best Provider of Tradable Indices Asia Pacific Asian Investor Service Providers Awards

Global Index Provider of the Year Global Pensions Awards

Index Provider of the Year Asia Asset Management Awards

Index Provider of the Year Asia Structured Products Asia Awards

Best Index Provider The Asset Triple A Awards

Best Provider of Benchmark Indices Asia Pacific Asian Investor Service Providers Awards

Global Index Provider of the Year Global Pensions Awards

Index Provider of the YearEuropean Pensions Awards

Best Provider of Tradable Indices (Asia Pacific)Asian Investor Service Providers Awards

ETF Index Provider of the Year (Asia)Asia Asset Management Best of the Best Awards

Global Index Provider of the YearGlobal Pensions Awards

Index Innovation of the Year Asia Structured Products Asia Awards

FTSE is proud to be the recipient of a number of industry awards recognising our commitment to excellence & innovation in indexation:

2008

2009

2010

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Custom

Index Provider of the YearEuropean Pensions Awards

Innovation of the YearStructured Products Europe Awards

Index Provider of the Year in China Asia Asset Management Awards

Best Local Index Provider of the Year Asia Asian Investor Awards

Index Provider of the Year European Pensions Awards

Best Tradable Index Provider Asian Investor Awards

ETF Index Provider of the YearAsia Asset Management, Best of the Best Awards

Index Provider of the Year European Pensions Awards

Most Recognised ETF Brand (Asia) Global ETF Awards for China A50

2011

2012

2013

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© 2013 FTSE International Limited (“FTSE”). All rights reserved. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE under licence. “All-World®”, “All-Share®”, “All-Small®” and “FTSE4GOOD®” are trade marks of FTSE.

Rights in each index vest in FTSE, the FTSE Licensors and/or FTSE’s relevant partners. Neither FTSE, the FTSE Licensors nor FTSE’s relevant partners makes any claim, prediction, warranty or representation whatsoever, expressly or impliedly, either as to the results to be obtained from the use of the indices, the figure at which the said index stands at any particular time on any particular day, the fitness or suitability of the index for any particular purpose to which it might be put to and/or otherwise. Each Index is compiled and calculated by FTSE and/or its relevant partners. However, neither FTSE nor the FTSE Licensors nor FTSE’s relevant partners shall be liable (whether in negligence or otherwise) to any person for any error in any index and neither FTSE nor the FTSE Licensors nor FTSE’s relevant partners shall be under any obligation to advise any person of any error therein. Distribution of FTSE index values and the use of FTSE indices to create financial products requires a licence with FTSE and/or its licensors. The information and opinions contained in this document, which has been prepared by FTSE, are not intended to be a comprehensive study, nor to provide any advice, and should not be relied on or treated as a substitute for specific advice. All information is provided for information purposes only. No reliance may be placed for any purposes whatsoever on the information contained in this document or its completeness. No representation or warranty is given by FTSE or its partners, any of its directors, officers or employees as to the accuracy or completeness of the information or opinions contained in this document and no liability is accepted for any such information or opinions. While every effort is made to ensure that all information given by FTSE in this publication is accurate, no responsibility or liability can be accepted by FTSE and/or its relevant partners for any errors or for any loss arising from use of this document. This document and its contents may not be reproduced, redistributed, stored in retrieval system, or passed on, directly or indirectly, to any other person or published, or transmitted by any other form or means whether electronic, mechanical, photocopying, recording or otherwise in whole or in part, for any purpose without the prior written consent of FTSE. This document has not been approved by a person authorised under the Financial Services and Markets Act 2000 (“FSMA”) for the purposes of section 21 of FSMA. Accordingly this document and the information contained within it is only made to, and for the use of, persons whom FTSE believes to be investment professionals within the meaning of article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005. This document should not be relied upon by anyone else. If you have not received this document directly from FTSE, do not use or rely on it or forward it to anyone else. Nothing in this document constitutes financial or investment advice. Furthermore FTSE does not provide clients of the FTSE Custom service with any investment advice and no aspect of the service should not be taken to consist of investment advice. FTSE Custom clients and not FTSE are responsible for assessing and determining the merits of the investment strategy and assets from time to time represented in a custom index. You should exercise your discretion in your use of the FTSE indices and if you do not have the relevant professional expertise in relation to investments of the kind the indices relate to, before using the indices you should consult an investment professional who does for advice. FTSE is not an investment adviser and makes no representation regarding the advisability of investing in any security or investment vehicle. A decision to invest in any such security or an investment vehicle should not be made in reliance on any information above. Indices cannot be invested in directly. Inclusion of a security in an index is not a recommendation to buy, sell or hold such security. Please see ftse.com for additional legal disclosures and complete index methodology details.