Salomon Smith Barney Helps Index Competitor

January 01, 2000

Salomon Smith Barney (SSB) has launched what may be one of the first global indexes intended as an independently created extension of a competing provider's index. The SSB Developed International Smaller-Cap Completion (DISC) Index covers the companies in the bottom 40% of the SSB Broad Market Index that have a minimum available float of $200 million AND are not included in the Morgan Stanley Capital International World Index.

"We were asked (by clients) to develop an investing strategy that could augment a Morgan Stanley strategy for those certain clients who could not or would not be able to change their investment strategy from MSCI World, but wished to round out their country coverage with a basket of smaller capitalization issues," said Patrick Kerr, an analyst with SSB. Which means the DISC was designed as a complement to the MSCI World Index, he said. It was developed by SSB's Global Equity Index Group in consultation with Barclays Global Investors.

The DISC World Index, from which the new product is drawn, contains about 3,500 companies with a total market capitalization of about $6 trillion. The MSCI World Index covers about 1,400 companies with a total market capitalization of about $17.3 trillion.

"The one thing that we felt was important that resulted from creating DISC and combining the DISC investment strategy with the MSCI investment strategy was that an investor that does so would reduce their tracking error to the Salomon World index or whichever region you're referring to by as much as 50% and with a concurrent and substantial reduction in volatility," Kerr said.

One of the main advantages the index offers investors is diversification and also a way of tracking a segment of the market not dominated by large-cap stocks. "Some investors feel that the larger cap issues in some of these countries are possibly overvalued and are looking to go to a cheaper area of the market," Kerr said. "It's not what Morgan Stanley's index is; it's what it's not," he summed up.


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