The constituents of the indices are reviewed on a regular basis at which point companies are added or dropped from the list. Readers may remember the flurry when the FTSE 100 was last reviewed in June particularly concerning the dropping of Railtrack.
Falling from the FTSE 100 has more of a psychological effect than a practical one says Graham Colbourne, the director of markets development at FTSE. Being a member is an indication of power in the market rather than of how much money will be invested in the firm.
“Most funds in the UK and 80% measured by value are benchmarked against the FTSE All-Share so whereas Railtrack fell out of the FTSE 100 it did not mean that a lot of investors were likely to sell the shares.”
Mr Colbourne says: “We try to make the FTSE indexes as transparent and predictable as possible. We have firm review dates each quarter. Also we have tried to put as much structure in the process as we can so people can follow what we are doing and don’t get any surprises.”
Morningstar benchmarks
To ensure consistency for investors researching funds within its categories Morningstar uses the series of MSCI indices. Each category has its individual index against which the funds are compared.
On the total returns page of the Morningstar Quicktakes the performance of the fund relative to its index (
) and its category (
) is shown. The index figure shows the performance of that single fund against the MSCI index Morningstar has designated for that category. The category number details how the fund has performed compared to the average of all of the funds in its category.
In addition, investors can find more information about the risk characteristics of their funds on the Rating and Risk page of the Morningstar Quicktake reports.
