ABN marks time with new indices

ABN Amro has launched a new range of stock market indices, designed to outperform traditional benchmarks with the aid of market timing. The new indices, which will be independently calculated by Standard & Poor's, will be called the ABN Amro Alpha range.

The indices are based on the observation that investors tend to reduce risk in the approach to the end of the month or to public holidays such as Christmas. ABN Amro believes this is because traders usually have to report profits and losses at the end of these periods. They accordingly wish to "lock in" their gains.

The indices accordingly aim to exploit this market anomaly by following a simple strategy. Funds will be invested in the market shortly before the end of the month or a public holiday. Equity holdings will then be sold after the start of the month or the holiday has occurred. For the rest of the period, the fund will be invested in cash, earning interest.

ABN Amro back-tested the strategy for a range of markets,......In every case, thestrategy delivered higher annual returns with lower volatility, or risk........

There will be 12 indices in the range, based on Australia, Europe, Germany, Hong Kong, Italy, Japan, the Netherlands, Spain, Switzerland, the UK, US and US technology. ABN Amro plans to launch shortly a range of investment products based on these indices.

The products will be in the form of certificates, which will be listed on stock exchanges, and will have total costs (including fees) of 1 per cent a year. The certificates will initially be aimed at the institutional market but ABN Amro eventually hopes to market the concept to retail investors.

Earlier this year, FTSE International launched a range of fundamental indices, based on the work of Robert Arnott of Research Affiliates. The indices weight stocks according to fundamental factors, such as sales, book value, cashflow and dividends, rather than on the basis of market capitalisation. Mr Arnott found that indices based on such measures outperformed the S&P 500 index by 1.5-2 per cent a year over the period since 1962.

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