FVC Custom Indexes

The S&P 500 index fell by over 5% between the end of May 2010 and the end of June 2010, but made up the lost ground as July came to a close. In turn, FVC’s US Accelerated Index mirrored the fall of the US benchmark as well as the recovery. The similarity in performance is due to the growth structure of the hypothetical products tracked by the FVC index as well as the
capital-at-risk element.

The FVC Income Index fell but not in line with the S&P 500. Meanwhile, the FVC Protected Index was least affected by the fall, hardly moving due to the capital protection element of the hypothetical products the index is tracking.

The value of all three indexes, and especially the Protected index, was affected by the level of the risk-free rate. Since June 2010, the risk-free rate in the US has been falling, which will increase the value of any existing products tracked by the index while making it more expensive to structure new products. Therefore protected products structured now may have quite a low cap on returns, which will have an effect on the level of the index five years hence when the products mature.

The behaviour of the UK FVC indexes and the FTSE 100 index has been very similar to that of the US indexes over the past six months. The performance of the market was similar to the US in that there was a dip in June, which is reflected in the FVC indexes in different ways – the Accelerated index was affected  the most and the protected index the least.

The volatility of the three indexes shows that the Protected index is the least volatile and the accelerated has the highest volatility, with the Income index lying between the two. Seeing how the different indexes react to changes in the market shows why they have varying degrees of volatility.

The global indexes are a combination of the US, UK, Europe and Japan FVC indexes. As the behaviour of the US and UK regions resemble each other, it is not surprising that the FVC global indexes demonstrate similar changes. The Global Protected Index showed no declines in June, instead recording a month-on-month change of 0.35. This is as a result of Protected index growth for June in both Europe and Japan.

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