Indices
An index is a means of measuring the performance of a financial market or a sector of a particular market through the combined prices of some or all of its constituents. Some indices only include companies which meet specific social, environmental or ethical criteria – such as FTSE4Good and the Dow Jones Sustainability Index. Tracker funds are passively managed funds which track the performance of particular indices.
In this section
What are indices?
Examples
Investing in an index
What are indices?
An index is a grouping of securities representing a particular market or a portion of it. An index acts as a measure of change in a financial market. Each index has its own calculation methodology and is usually expressed in terms of a percentage change from a base value.
A well-known example is the FTSE100 which includes the largest 100 companies listed on the London Stock Exchange.
Examples
Indices have been established which include only those companies that meet specific responsible investment criteria. These include:
FTSE4Good
FTSE4Good has been designed to measure the performance of companies that meet globally recognised corporate responsibility standards. For inclusion companies must meet minimal criteria: environmental sustainability, positive relations with stakeholders and human rights. FTSE is currently introducing further criteria relating to supply chain management and bribery. The index excludes companies which produce tobacco, manufacture whole weapons systems and nuclear weapons or are involved in nuclear power.
Dow Jones Sustainability Index
The Dow Jones Sustainability Indices track the financial performance of the leading sustainability-driven companies worldwide. The DJSI family follows a best-in-class approach comprising the sustainability leaders in the investable universe from each industry.
Calvert Social Index
The Calvert Social Index is a broad-based benchmark for measuring the performance of large, US-based socially responsible companies.
Domini 400 Social Index
KLD’s Domini 400 SocialSM Index (DS400) is modelled on the S&P 500 Index. The DS400 is the first benchmark for equity portfolios subject to multiple social screens.
Investing in an index
It is not possible to actually invest in an index. But it is possible to invest in a fund that attempts to track an index as closely as possible.
Index fund
An index or tracker fund aims to match the performance of a particular index. The fund buys shares in securities included in the index in proportion to the security’s representation in that index.
Investing in an index or tracker fund is known as passive investing. Pursuing such a strategy may allow investors to pay lower management fees.
Some funds exist which track SRI indices. Examples include the CIS FTSE4Good Tracker Trust and Direct Line FTSE4Good Tracker Fund which aim to track the FTSE4Good UK Index.
The HSBC Amanah Global Equity Index Fund aims to track the Dow Jones Islamic Market Titans 100 Index, which is comprised of Shariah compliant stocks from around the world.
If your charity wishes to invest in some form of tracker fund you should examine the criteria applied by the index to see how this fits with your issues of concern.
Disclaimer
The featured products have been selected as examples only. The inclusion of a particular fund does not imply an endorsement of it. Moreover, the use of an example does not imply a recommendation of it over any other example or further example used or of any product not listed.
