Global index, data and analytics provider FTSE Russell has launched a comprehensive range of technology-focused thematic indices based on universes, including the FTSE Global All Cap, Russell 3000, FTSE All-Share Ex Investment Trusts, and FTSE AIM All-Share.

Investors can gain broad exposure to multiple technology themes through the new FTSE Global Technology SuperTheme Index, or via more targeted single-theme benchmarks, such as the FTSE Global Artificial Intelligence Index, FTSE Global Robotics & Automation Index or the FTSE Global Fintech & Blockchain Index. 

FTSE Russell’s index methodology is driven by its dynamic classification algorithm, which uses state of the art natural language processing techniques for its new thematic range. A dynamic approach is used to help identify and select companies with exposure to specific themes. The algorithm will use a set of keywords, which may be updated with the development of the theme over time, to discover relevant companies by screening a variety of unstructured content, such as company descriptions.  The unconstrained approach offers a more flexible way to construct an index than reliance on sector classifications or revenue profiles.

The methodology is consistent with FTSE Russell’s transparent and rules-based approach. All FTSE Russell thematic indices follow a liquidity weighting scheme.  Together with a weight cap mechanism, which limits the weight of an individual constituent at 5% of the index, the thematic offering is designed to provide a liquid, diversified, investable opportunity set.

The FTSE Global Technology SuperTheme Index has delivered a cumulative five-year return of 271%, with single themes, such as the FTSE Global Artificial Intelligence Index achieving a 42.9% return over the last year.

Globally, thematic assets under management (AUM) have exceeded US$600 billion, with a five-year annual growth rate of 50%. Exchange-traded funds (ETFs) and open-ended active funds account for most of this growth, with technology-related funds accounting for half of total thematic AUM.  Furthermore, industry surveys point to strong interest in thematic investments in coming years. 

The indices have a range of applications for investors, from serving as the basis of thematic ETFs, to measuring portfolio performance or informing active management stock selection. The products can also be used to support the development of derivatives product used to hedge specific exposures.

“Technology has become the dominant theme for thematic equity investors in recent years,” says Arne Staal, CEO at FTSE Russell. “With an increasingly wide variety of sub-themes, we’ve designed global and regional technology-focused benchmarks that offer investors multi-theme exposure and, therefore, greater portfolio diversification, but also more surgical exposures to specific emerging themes, such as artificial intelligence or blockchain. These new thematic indices are built using innovative natural language processing techniques to identify companies for inclusion.”