12"Distributing" indexes add transparencyMore recently, Dow Jones Indexes introduced a series of dividend indexes that adhere to a unique "distributing" methodology."Clients were looking for greater transparency as to the impact of dividends on index performance, Jamie explains. "We came up with a way to satisfy these requests," he says. "We developed a really distinctive methodology that breaks out an index's dividend performance from its price performance."The new methodology was applied to 10 indexes in the Dow Jones Select Dividend IndexSM family, starting with the indexes for Australia, Canada, France, Germany, Switzerland, the United Kingdom and the United States, as well as for the Europe and Eurozone regions.Worldwide outlookJamie says that it is no accident that Europe is so well represented in the list of indexes that have distributing versions. "Our clients are currently looking for tools that allow them to track leading companies in the largest and most stable European countries. These indexes provide the opportunity for them to do just that." He adds that these indexes are especially relevant for issuers of structured products, which is an investment vehicle widely popular across Europe.However, he is quick to point out that while many of the new dividend indexes spotlight the developed markets of Europe, Dow Jones Indexes is not ignoring other markets. Quite the opposite, he says: emerging markets remain a priority as Dow Jones Indexes builds out new index series."In November 2011, we came out with the Dow Jones Emerging Markets Select Dividend IndexSM," he says. "That index is made up of 100 top dividend payers from a diverse geographic area. It's an interesting mix of companies.""Everything old is new again"Upon mentioning "tradition," Jamie changes gear and talks about stock-market history. He says that the more "modest" returns expected from dividends are now much more en vogue. "It used to be accepted as a given by many that dividend-paying companies were the key to long-term growth. That's the way it was for years and years."Then, starting with the bull markets of the 1980s, I think that people couldn't resist going for stocks that seemed to promise higher prices over shorter periods of time. But in the past decade or so, since the dot-com bubble and especially after the 2008 financial crisis, dividend indexes like ours are a case of 'everything old is new again.' People want to watch companies make those quarterly or annual payments."Jamie thinks that interest in dividend-paying companies and dividend indexes will continue, at least in the foreseeable future. "Dividends are not only attractive on their own, but historically have provided some indication of company strength and stability. As long as that's the case, our dividend indexes-whatever the type, whatever the geography-will continue to draw attention. That's why we created them and that's why we keep making more."For more information on Dow Jones Dividend IndexesSM, visit: >> www.djindexes.com/dividend"What makes this index different is that it doesn't use dividend yield as the sole criterion for stock selection. It digs a little deeper. It's designed to find high-dividend- paying companies with really strong business essentials."
13For most people, periods like 10 or 30 years might seem to be a really long time. But for investors looking to mitigate the impact of inflation on a portfolio, 10 and 30 years are the sweet spots for gauging short- and long-term inflation expectations."When you're looking at inflation from the perspective of an investor, like Credit Suisse does, the best indicators are 10- and 30-year TIPS," says Baldwin Smith, Managing Director and Head of Index and Alpha Strategies at Credit Suisse. "The 30-year 'long bond' works for the long-term because of its far-off maturity. The 10-year gives you a better 'shorter-term' outlook."Inflation is one of the most vexing pieces of financial data because of its ripple effect across the markets and the greater economy. Guessing at which way inflation will move is a pastime (some might say, obsession) of economists and Wall Street analysts. Investors are constantly looking for ways to hedge against the impact that inflation can have on their portfolios. Credit Suisse, in conjunction with Dow Jones Indexes, has introduced new indexes that seek to track the financial markets' pure expectations for inflation. They do so by starting with the TIPS market's built-in expectation for medium and long-term inflation, while simultaneously aiming to remove the interest-rate risk inherent with TIPS. The Dow Jones Credit Suisse Inflation Breakeven Index was launched in the fourth quarter of 2011, joining the Dow Jones Credit Suisse Inflation Index series that came out in 2010."By taking a long position in 10-year TIPS, and a short position in the 10-year Treasury, the goal is to isolate inflation expectations over that time period," says Baldwin. Holders of U.S. government bonds, he says, are extremely inflation-conscious because of the detrimental effect it has on returns. As the market collectively senses that inflation is waxing or waning, the TIPS market quickly and reliably reflects investors' views. He frames the index's strategy using a simple mathematical formula (and explains the index's name):"If you take the yield of the Treasury and subtract the yield of the TIPS with the closest maturity, you get what's called the 'breakeven' rate," he says. "It's an investor's way of saying 'this is where I think inflation will be, and if I am right, I'll "breakeven" and get the same return that I would by buying a regular Treasury of the same maturity.' The index is highly correlated to the breakeven rate, and is structured to be duration neutral, with a goal of minimizing the effect of interest-rate movements on the performance of the index."More accessibility, transparencyWhen the Credit Suisse Index and Alpha Strategies group sat down with Dow Jones Indexes to create this new index, they wanted to make it the most open and accessible product of its kind. "There are similar indexes available to investors, but they have various shortcomings in comparison with ours," he says. "They're not as liquid. They're not readily available to many retail, and even some institutional investors. The breakeven index is readily available to a group of investors who've often been excluded from this opportunity."The indexes are meant to be comprehensible and straight-forward for investors of all types. By offering both 10-year and 30-year indexes, we've given investors a choice that spans two different points on the yield curve," says Baldwin. "These indexes give investors more information with respect to the broad market spectrum."Market InsightMeasuring "Breakeven" InflationBaldwin SmithManaging Director and Global Head of Index and Alpha Strategies, Credit Suisse