The FTSE Russell Target Diversification Index Series methodology introduces two critical innovations that fundamentally transform index construction.
The FTSE Russell Diversification Factor provides an intuitive metric that expresses index concentration in terms of equivalent number of equally weighted stocks. The FTSE Russell Target Diversification is an algorithm that rescales index weights, minimising distortions to industry exposures and investment style characteristics while achieving the desired level of diversification.
For the first time, investors can precisely target their desired level of diversification with an intuitive metric, achieving the optimal balance between representation and risk reduction in increasingly concentrated markets.
