INDEX SERIES FTSE PUBLICATIONS. FTSE UK Digital Services Index Series

Transcription

1 INDEX SERIES FTSE PUBLICATIONS FTSE UK Digital Services Index Series

2 Introduction The use of the internet and the proliferation of digital services have created substantial change in how everyday activities are carried out. Over the past ten years in the UK the proportion of households with internet access has risen dramatically from 46% to 83% (Source: ONS). To put this in a broader perspective the average percentage of individuals using the internet in Europe in 2013 was 75%, whilst in the UK on a similar basis the proportion was 87%, (Source: International Telecommunications Union 2012). A report by Eurostat in 2012 highlighted that the UK had the highest rate of online purchasing across the EU with 82% of internet users buying online. The combination of the growth in online purchasing, the evolution of digital services at both and industry and consumer level is indicative of the impacted of the digital revolution. In addition to the broad increase in access to the internet and digital services at a household level there has been a dramatic shift in the ways people are connecting to the internet. Over 53% of all adults now access the internet on a mobile phone, up from 24% just three years ago. As shown in the table, the trends in usage have grown across all age groups highlighting the depth of the change in internet usage. Whilst it is not surprising that in the age group internet usage on a mobile phone has risen from 43% to 89%, there has been a more marked increase in the age group where usage has jumped from 30% to 70%. Similarly household use of tablet computers has risen dramatically with usage doubling over the past year from 11% in Q to 24% in Q (Source: Ofcom). Internet use on the go is part of the broader means of access that is increasingly promoting a shift in the range of activities impacted by the trends in digital services. The table of internet activities by all groups is indicative of the wide range of resources delivered on line as an alternative to traditional services. It also serves to highlight the dynamics of the range of industries impacted by this shift to digital services. The growth in digital services has also spurred new leisure activities such as social networking, consulting wikis and making video calls over the internal via a webcam. Other activities that are being dramatically impacted include financial services with 50% of all adults accessing bank accounts over the internet compared to 30% in In the context of the media industry and in line with reports of the decrease in physical newspaper readership there has been a continued shift to greater online access with 55% of adults using the internet to read or download news as opposed to only 20% in Travel and leisure has also witnessed continued growth in usage with 50% of adults using the internet to engage in this activity. FTSE has created the UK Digital Services index series in order to reflect the representation of companies operating in these industries and that are providing digital services. Internet users by region 2005 B 2010 B 2013 AB Europe 46% 67% 75% Americas 36% 49% 61% CIS 10% 34% 52% Arab States 8% 26% 38% Asia and Pacific 9% 23% 32% Africa 2% 10% 16% A Estimate. B Per 100 inhabitants. Source: International Telecommunications Union

3 Creating a representative index FTSE has designed the UK Digital Services Index Series, so that it cuts across several aspects of index design that are currently used in the UK indices, in order to create a broad and representative index. The indices have been calculated based on the FTSE All-Share and the FTSE AIM benchmarks as well a composite index of both FTSE All-Share and FTSE AIM constituents. The broadly defined Digital Services index seeks to encompass both those companies that operate in a B2C digital capacity and those serving B2B digitally. The design of the index is differentiated from the current Industry Classification Benchmark methodology used in FTSE s indices and seeks to focus on how companies are perceived as providing internet related services. The range of activities currently pursued online and the table of purchases serves as a useful guideline to the sectors that contribute to the provision of digital services in the UK. Structurally, ICB caters for such internet companies in two ways. Firstly, with the current internet sector and secondly distributed across ICB due to the look through nature of assigning business activities. Unravelling the latter process means that as a starting point a group of subsectors where internet related service companies may be allocated needs to be selected. In this context one can see clear trends in areas such as media, travel and leisure, various areas of retailing and telecommunications. At a B2B level sectors that are likely to have representative companies include software and computer services and technology hardware and equipment. UK Households with Internet Access % Internet use on a mobile phone, 2010 to 2013, % ALL Men Women AGE GROUP Base: Adults (aged 16+) in Great Britain Source: Office for National Statistics 2 3

4 The current internet sector in the UK The definition of Digital Services The current ICB structure has an internet sector; however, this has only one constituent from the All-Share and only 11 from the AIM universe of stocks. To create a more widely applicable digital services index has required the analysis of companies from 17 sectors and 40 ICB subsectors. The full range of ICB subsectors and is shown in the Appendix on page 12. In terms of defining companies that are relevant to the index, companies have been considered if they obtain more than 50% of their revenues from providing a form of digital / online service. Alternatively, companies have to be engaged in providing services that are considered integral and critical for the provision of digital services. More formally: A company is eligible for the index if it derives more than 50% of its revenues from either digital or online services, or if it is considered to be engaged in providing services that are integral and critical for the functioning of digital services. In the current FTSE All-Share, 26 companies meet this definition. In the FTSE AIM universe, 60 companies meet the definition. Adults in the UK and daily internet usage Number of adults using the internet daily % of adults using the internet daily (RHS) Source: Office for National Statistics Internet activities by all age groups, 2013 % Sending/receiving s 75 Finding information about goods and services 66 Reading or downloading online news, newspapers or magazines 55 Social networking, eg Facebook or Twitter 53 Using services related to travel or travel related accommodation 50 Internet banking 50 Seeking health related information 43 Consulting wikis 43 Looking for information about education, training or course offers 31 Downloading software (other than games software) 31 Selling goods or services over the Internet 28 Telephoning or making video calls over the Internet via a webcam 25 Looking for a job or sending a job application 24 Participating in professional networks 15 Posting opinions on civic or political issues 10 Doing an online course 9 Taking part in online consultations or voting on civic or political issues 7 Source: Office for National Statistics 4 5

5 Index design considerations Purchases made over the Internet, by all age groups, 2013 % Clothes, sports goods 47 Household goods 43 Films and music 36 Books, magazines, newspapers 34 Holiday accommodation 33 Other travel arrangements 32 Tickets for events 31 Food or groceries 21 Electronic equipment 20 Video games software and upgrades 19 Share purchases, insurance policies etc 18 Other computer software and upgrades 18 Telecommunication services 15 Computer hardware 10 Medicine 8 E-learning material 5 Source: Office for National Statistics ICB and Digital Services The FTSE All-Share constituents range from super large cap stocks, such as Vodafone, BT and ARM ( 126bn 16bn), to relatively small companies such as Emblaze and BATM ( 50 60m). The AIM constituents are equally widely dispersed with ASOS with a market capitalisation of 2.7bn, whilst some of the smaller companies have market capitalisations below 10m. A typical market capitalisation weighted index would not offer meaningful representation of many of the smaller constituents, and it may also be too highly concentrated. As an example if the FTSE All-Share Digital Services constituents were created as an index on a market capitalisation weighted basis the top 3 companies would account for over 88% of the index. Although not as extreme an example of concentration, the FTSE AIM Digital Services index, if calculated on a market capitalisation basis would result in seven constituents accounting for close to 75% of the index. In order to create an index that balances representation, investability and liquidity a 50m free float market capitalisation size threshold was chosen and this was combined with equal weighting. The FTSE All-Share Digital Services index is based on eligible constituents with a market capitalisation greater than 50m, based on a September annual review, and equally weighted, reset on a quarterly basis. This index had, as of November 2013, a total of 24 constituents from the full list of 26, as two companies were removed by the size test. The broad composite FTSE Digital Services UK index is based on the FTSE All Share and FTSE AIM constituents, equally weighted with a 50m threshold, based on a September annual review and with the weights reset on a quarterly basis. As of November 2013, there were 43 constituents and a broad representation across ICB Supersectors and subsectors. Over the past 3 years, the FTSE UK Digital Services Index had an annual performance of 23.8%, compared to 11.3% for the FTSE All-Share. The FTSE UK Digital Services Index has also had lower realised one year volatility over the past two years compared to the FTSE All-Share. Comparing the past 3 years, the FTSE AIM Digital Services Index had an annual performance of 27.0%, compared to -0.5% for the FTSE AIM All-Share. In contrast to the FTSE UK Digital Services Index, the FTSE AIM Digital Services Index has had relatively high realised volatility compared to the FTSE AIM All-Share benchmark. The FTSE All-Share Digital Services index had annualised returns of 20.3% over the past 3 years, which compares to the 11.7% return of the FTSE All-Share. Since March 2013, one year realised volatility for the FTSE All-Share Digital Services Index has been higher than that of the FTSE All-Share. 10 Industry 19 ICB Super Sectors The FTSE AIM Digital Service index is similarly constructed and in this index, at the end of November 2013, there were a total of 19 constituents from the full list of ICB Sectors 114 ICB Subsectors 38 ICB Subsectors UK Digital Services Index Series Universe Index Consituents 6 7

6 Performance and Volatility - Total Return Index (GBP) Return % Return pa %* Volatility %** FTSE All-Share Digital Services Index Relative Performance 140 3M 6M YTD 12M 3YR 3YR 1YR 3YR FTSE UK Digital Services Equally Weighted FTSE All-Share Digital Services Equally Weighted FTSE AIM Digital Services Equally Weighted FTSE All-Share FTSE AIM All-Share * Compound annual returns measured over 3 years ** Volatility 1YR based on 12 months daily data. 3YR based on weekly data (Wednesday to Wednesday) Sep 10 Dec 10 Mar 11 Jun 11 Sep 11 Dec 11 Mar 12 Jun 12 Sep 12 Dec 12 Mar 13 Jun 13 Sep 13 rel to Equal Weight All-Share rel to Cap weighted All-Share FTSE UK Digital Services Index Performance FTSE AIM Digital Services Index Relative Performance 2, , , , , , , Sep 10 Feb 11 Jun 11 Nov 11 Mar 12 Aug 12 Jan 13 May 13 Oct Sep 10 Dec 10 Mar 11 Jun 11 Sep 11 Dec 11 Mar 12 Jun 12 Sep 12 Dec 12 Mar 13 Jun 13 Sep 13 FTSE UK Digital Services Equally Weighted Index FTSE All Share rel to Equal Weight AIM All-Share rel to Cap weighted AIM All-Share 8 9

7 Sector Diversification Summary The broad FTSE UK Digital Services Index covers 11 sectors and 15 subsectors and highlights the diversity of digital services companies represented in the UK indices. Although Software and Computer Services accounts for 23% of the index there is also a strong representation of other sectors such as Media (12.0%), Travel & Leisure (11.1%). In aggregate Fixed Line and Mobile Telecommunications has a weight of 21.1% in the index. The FTSE All-Share Digital Services Index comprises nine sectors. In this index Technology Hardware and Equipment has the highest weight at 20% whilst the second largest sector weight is in Travel and Leisure at 17.2%. The combined weight of Fixed Line and Mobile Telecommunications is just under 22% whilst Software has a weight of just over 15%. The FTSE AIM Digital Services Index also has representation from nine sectors with a substantial weighting of 31.3% in Software and Computer Services. Both Media and Technology sectors have weights of around 11.5%. Compared to the FTSE UK and FTSE All-Share Digital Services Indices, the weight of Travel and Leisure is significantly lower at below 5%. Unlike the FTSE All-Share Digital Services Index almost 10% of the index is represented by Financial Services and 6.3% in Support Services. There is also a substantial combined Telecommunications weight of 20.2%. FTSE has created three indices that capture the performance of companies listed and traded in the UK that are representative of Digital Services, either as providers to consumers or businesses. The FTSE Digital Services UK Index combines constituents from the FTSE All-Share and FTSE AIM and provides a diversified index that reflects the emerging trends in companies providing key digital services and products. The sector breakdown highlights that less than 40% of the index is made up of software and technology companies. There are significant weightings in key service areas such as travel and leisure, media and general retailers that make up close to 30% of the index. FTSE s new indices will allow market participants to monitor the performance of companies involved in this key part of the UK economy. The UK is one the leading countries in Europe with respect to the use of Digital Services and FTSE s indices are designed to capture this trend. Sector Weights UK All-Share AIM Support Services 3.1% 6.3% Food & Drug Retailers 2.3% 4.6% General Retailers 4.5% 4.1% 4.8% Media 12.0% 12.4% 11.5% Travel & Leisure 11.1% 17.2% 4.9% Fixed Line Telecommunications 12.4% 13.4% 11.4% Mobile Telecommunications 8.7% 8.5% 8.8% Nonlife Insurance 2.4% 4.7% Financial Services 4.7% 9.5% Software & Computer Services 23.0% 15.1% 31.3% Technology Hardware & Equipment 15.8% 20.0% 11.5% Digital Services Sector Constituent Breakdown ICB Supersector UK All-Share AIM Industrial Goods & Services 1 1 Retail Media Travel & Leisure Telecommunications Insurance 1 1 Financial Services 1 1 Technology

8 Appendix FTSE UK Digital Services Subsector Universe Constituents are selected from the following ICB Subsectors Industry Supersector Sector Subsector Definition 2000 Industrials 2700 Industrial Goods & Services 2790 Support Services 2795 Financial Administration Providers of computerized transaction processing, data communication and information services, including payroll, bill payment and employee benefit services Consumer Goods 3700 Personal & Household Goods 3720 Household Goods & Home Construction 3722 Durable Household Products Manufacturers and distributors of domestic appliances, lighting, hand tools and power tools, hardware, cutlery, tableware, garden equipment, luggage, towels and linens Nondurable Household Products Producers and distributors of pens, paper goods, batteries, light bulbs, tissues, toilet paper and cleaning products such as soaps and polishes Furnishings Manufacturers and distributors of furniture, including chairs, tables, desks, carpeting, wallpaper and office furniture Leisure Goods 3743 Consumer Electronics Manufacturers and distributors of consumer electronics, such as TVs, VCRs, DVD players, audio equipment, cable boxes, calculators and camcorders Recreational Products Manufacturers and distributors of recreational equipment. Includes musical instruments, photographic equipment and supplies, RVs, ATVs and marine recreational vehicles such as yachts, dinghies and speedboats Toys Manufacturers and distributors of toys and video/computer games, including such toys and games as playing cards, board games, stuffed animals and dolls Personal Goods 3763 Clothing & Accessories Manufacturers and distributors of all types of clothing, jewellery, watches or textiles. Includes sportswear, sunglasses, eyeglass frames, leather clothing and goods, and processors of hides and skins Footwear Manufacturers and distributors of shoes, boots, sandals, sneakers and other types of footwear Personal Products Makers and distributors of cosmetics, toiletries and personal-care and hygiene products, including deodorants, soaps, toothpaste, perfumes, diapers, shampoos, razors and feminine-hygiene products. Includes makers of contraceptives other than oral contraceptives, which are classified under Pharmaceuticals

9 Industry Supersector Sector Subsector Definition 5000 Consumer Services 5300 Retail 5330 Food & Drug Retailers 5337 Food Retailers & Wholesalers Supermarkets, food-oriented convenience stores and other food retailers and distributors. Includes retailers of dietary supplements and vitamins General Retailers 5371 Apparel Retailers Retailers and wholesalers specializing mainly in clothing, shoes, jewellery, sunglasses and other accessories Broadline Retailers Retail outlets and wholesalers offering a wide variety of products including both hard goods and soft goods Home Improvement Retailers Retailers and wholesalers concentrating on the sale of home improvement products, including garden equipment, carpets, wallpaper, paint, home furniture, blinds and curtains, and building materials Specialized Consumer Services Providers of consumer services such as auction houses, day-care centres, dry cleaners, schools, consumer rental companies, veterinary clinics, hair salons and providers of funeral, lawn-maintenance, consumer-storage, heating and cooling installation and plumbing services Specialty Retailers Retailers and wholesalers concentrating on a single class of goods, such as electronics, books, automotive parts or closeouts. Includes automobile dealerships, video rental stores, dollar stores, duty-free shops and automotive fuel stations not owned by oil companies Specialty Retailers Retailers and wholesalers concentrating on a single class of goods, such as electronics, books, automotive parts or closeouts. Includes automobile dealerships, video rental stores, dollar stores, duty-free shops and automotive fuel stations not owned by oil companies Media 5550 Media 5553 Broadcasting & Entertainment Producers, operators and broadcasters of radio, television, music and filmed entertainment. Excludes movie theatres, which are classified under Recreational Services Media Agencies Companies providing advertising, public relations and marketing services. Includes billboard providers and telemarketers Publishing Publishers of information via printed or electronic media Travel & Leisure 5750 Travel & Leisure 5752 Gambling Providers of gambling and casino facilities. Includes online casinos, racetracks and the manufacturers of pachinko machines and casino and lottery equipment Travel & Tourism Companies providing travel and tourism related services, including travel agents, online travel reservation services, automobile rental firms and companies that primarily provide passenger transportation, such as buses, taxis, passenger rail and ferry companies Telecommunications 6500 Telecommunications 6530 Fixed Line Telecommunications 6535 Fixed Line Telecommunications Providers of fixed-line telephone services, including regional and long-distance. Includes companies that primarily provides telephone services through the internet. Excludes companies whose primary business is Internet access, which are classified under Internet Mobile Telecommunications 6575 Mobile Telecommunications Providers of mobile telephone services, including cellular, satellite and paging services. Includes wireless tower companies that own, operate and lease mobile site towers to multiple wireless service providers

10 Industry Supersector Sector Subsector Definition 8000 Financials 8300 Banks 8350 Banks 8355 Banks Banks providing a broad range of financial services, including retail banking, loans and money transmissions Insurance 8530 Nonlife Insurance 8532 Full Line Insurance Insurance companies with life, health, property & casualty and reinsurance interests, no one of which predominates Insurance Brokers Insurance brokers and agencies Property & Casualty Insurance Companies engaged principally in accident, fire, automotive, marine, malpractice and other classes of nonlife insurance Life Insurance 8575 Life Insurance Companies engaged principally in life and health insurance Real Estate 8630 Real Estate Investment & Services 8637 Real Estate Services Companies that provide services to real estate companies but do not own the properties themselves. Includes agencies, brokers, leasing companies, management companies and advisory services. Excludes real estate investment trusts and similar entities, which are classified as Real Estate Investment Trusts Financial Services 8770 Financial Services 8773 Consumer Finance Credit card companies and providers of personal finance services such as personal loans and check cashing companies Specialty Finance Companies engaged in financial activities not specified elsewhere. Includes companies not classified under Equity Investment Instruments or Nonequity Investment Instruments engaged primarily in owning stakes in a diversified range of companies Investment Services Companies providing a range of specialized financial services, including securities brokers and dealers, online brokers and security or commodity exchanges Technology 9500 Technology 9530 Software & Computer Services 9533 Computer Services Companies that provide consulting services to other businesses relating to information technology. Includes providers of computer-system design, systems integration, network and systems operations, data management and storage, repair services and technical support Internet Companies providing Internet-related services, such as Internet access providers and search engines and providers of Web site design, Web hosting, domain-name registration and services Software Publishers and distributors of computer software for home or corporate use. Excludes computer game producers, which are classified under Toys Technology Hardware & Equipment 9572 Computer Hardware Manufacturers and distributors of computers, servers, mainframes, workstations and other computer hardware and subsystems, such as mass-storage drives, mice, keyboards and printers Semiconductors Producers and distributors of semiconductors and other integrated chips, including other products related to the semiconductor industry, such as semiconductor capital equipment and motherboards. Excludes makers of printed circuit boards, which are classified under Electrical Components & Equipment Telecommunications Equipment Makers and distributors of high-technology communication products, including satellites, mobile telephones, fibres optics, switching devices, local and wide-area networks, teleconferencing equipment and connectivity devices for computers, including hubs and routers

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