Reassessing risk, reward and evolving investor needs amid changing US market dynamics

CEO of Wilshire Indexes , Mark Makepeace , a pioneer in the index industry and founder of FTSE, is aiming to once again disrupt the index industry innovation with a focus on client-centric and technologically advanced solutions – as he explained in a recent discussion with Robert Armstrong , US financial commentator at the Financial Times .

The comments by Mark Makepeace, CEO of Wilshire Indexes, were made in a keynote at the FT Future of Asset Management North America Conference in New York, focused on the evolution of index construction, market dynamics, and the future of the global investment landscape.

Mark emphasized that Wilshire Indexes has assembled a team of top talent from the index industry to address what he describes as an outdated and rigid index industry. He noted that many current index offerings are "legacy" products that have not adapted to significant market shifts. Wilshire Indexes' goal is to offer more responsive, customizable, and growth aligned index solutions for asset owners and asset managers by leveraging cutting-edge technology to modernize index construction and improve service delivery.

Reflecting on broader market changes since the 1990s, Mark pointed out the significant transformation in the U.S. equity market. This includes a substantial reduction in the number of listed companies, a concentration in top technology stocks, and a shift from manufacturing to digital market leadership. Today, the top 10 stocks comprise roughly 30% of U.S. market capitalization, signaling a marked change in market structure.

Despite these shifts, Mark noted that the core principles of investing, including factor-based strategies, remain relevant. However, the traditional definitions of factors like value and growth are outdated and can be better defined using modern index construction techniques.

When Robert raised concerns about the potential distortive effects of passive and factor investing on market behavior, Mark acknowledged the rise of these strategies but dismissed the idea that they have led to excessive momentum-driven movements or unhealthy market correlations. Instead, he believes that the proliferation of passive investing has democratized information, ultimately benefiting both active and passive investors.

Discussing global markets, Mark highlighted the significant valuation disparity between U.S. equities and international markets. Over the past decade, the U.S. market has outperformed by about 7% annually, largely driven by stronger earnings growth in the U.S. He suggested that this valuation gap could narrow as earnings growth in international markets catches up. On China, while acknowledging current market challenges and volatility, Mark emphasized that China remains a key global player and should not be deemed "uninvestable." He cautioned against dismissing the market entirely, stressing the importance of a long-term perspective.

Regarding the U.S. election, Mark noted a "wait and see" approach from the market, with investors refraining from significant positioning until there is more clarity on the political outcome. He said the market is likely to react strongly only in the event of an unexpected result.

Looking ahead, Mark outlined his vision for the index industry, predicting a growing demand for alternatives to legacy players like MSCI and FTSE Russell. He observed that asset owners and asset managers are seeking greater flexibility and customization in their indexes, moving beyond traditional benchmarks.

Mark sees the next wave of innovation in index construction driven by advancements in computational power and artificial intelligence, which will enable more precise applications of financial theory. He envisions the future of the industry involving comprehensive, personalized indexes that cover all asset classes, offering more tailored, automated solutions for clients.

In summary, Mark sees Wilshire Indexes as a disruptor in the index industry, leveraging technology to create more dynamic and cost-effective solutions. He emphasized the importance of personalization, transparency, and growth aligned pricing as critical elements in meeting the evolving needs of global asset managers in an increasingly complex and concentrated market.

?