Moving from measuring markets to measuring the real economy

Global equity benchmarks are typically market-capitalisation weighted. While this approach is operationally efficient, it can also drift into concentration and valuation chasing—particularly when a single market, sector, or style dominates global equities. This paper introduces the FTSE All-World GDP Adjusted Index, an alternative benchmark design that weights countries in proportion to their economic output (using IMF World Economic Outlook GDP data) while retaining market-cap weighting within each country. The result is a rules-based framework that seeks to anchor global country weights to the real economy and introduce a systematic rebalancing discipline.

Key takeaways:

• Market-cap weighting can become procyclical: countries rise in benchmark weight as their equity markets become more expensive, potentially increasing concentration at valuation extremes
• GDP weighting reframes “neutral” global exposure: country weights reflect economic scale rather than listed equity valuation scale, aiming to align benchmark exposure with the global production base
• GDP-adjusted country weights can materially change regional and sector exposures versus cap-weighted benchmarks, with knock-on effects for concentration, valuation profile, and diversification characteristics
• Using a transparent, regularly updated GDP series (IMF WEO) provides a practical input for a repeatable, rules-based benchmark with a clear rebalancing schedule

Points of differentiation:

• Economic anchoring: replaces market-value country weights with GDP-based country weights while keeping market-cap weighting within countries to maintain investability
• Discipline against concentration: introduces a systematic mechanism to rebalance away from markets that have grown large relative to their share of world GDP
• Portfolio lens: evaluates implications for country and sector mix, concentration (effective number of constituents), valuation characteristics (e.g. price-to-book), liquidity, and turnover
• Pragmatic implementation: uses widely referenced IMF GDP data and a rules-based review cadence designed to be transparent and repeatable

What does our research mean for investors?

For institutions that use global equities as a strategic anchor, benchmark choice shapes the exposures investors hold by default. A GDP-adjusted benchmark offers a different definition of “neutral” global diversification—one that seeks to represent economic breadth rather than equity market depth at a point in time. In practice, this may help investors (i) reduce reliance on valuation-led concentration, (ii) access a different balance of regional and sector exposures, and (iii) embed a transparent, systematic rebalancing process. The index is not designed to track the cap-weighted market closely; rather, it provides an economically grounded alternative reference portfolio for investors who are comfortable with intentional deviations from market-cap weights.

Find out more: FTSE All-World Index; FTSE Global Equity Index Series (FTSE GEIS)