On October 11, Salomon Smith Barney (SSB) launched a complete series of global equity style indexes. The Salomon Smith Barney World Equity Style Indices include growth and value indexes for the large-cap, small-cap, and combined segments of the 23 developed countries and 18 major regions covered in the 7,400-stock Salomon Smith Barney World Equity Index.
"Our goal was to categorize stocks as growth or value in a better and more analytically rigorous way," said John Ginty, an analyst with SSB's Index Group.
The difference is in the criteria. Growth, elsewhere often based entirely on price to book ratios, is based on three different factors for the SSB indexes: the five-year historical earnings per share growth rate, the five-year historical sales per share growth rate, and the five-year average internal growth rate. Four variables are used to determine value: book to price ratios, sales per share to price ratios, cash flow per share, and dividend yield.
Ginty described the methodology as "more rigorous while being able to accommodate both large- and small-cap stocks."
The indexes were developed by SSB's Global Quantitative Research department and its Index department in consultation with major asset managers, Ginty said.
All of the World Equity Index's stocks are included in the new growth and value indexes; any single stock can also be in both the growth and value indexes as long as it meets the criteria for each. The new indexes, like all the SSB global indexes, are float weighted, meaning an individual stock's weighting in the index is based on its available market capitalization rather than its total market capitalization.
While no products have been developed based on the new indexes yet, Ginty believes that index-linked products are entirely possible.