Outlook: Loony indices

HERE'S A fascinating and somewhat disturbing fact. The value of the combined holding of UK pension funds in BP Amoco is more than their entire investment in the US stock market. Both of these things are shocking - first that their exposure to a single company could be so large and second that their participation in the greatest bull market of all time could have been so small. And both rather point to the need for reform in the way our pensions are invested.

Pension fund trustees, probably more than any other kind of investor, are particularly prone to the tyranny of the benchmarks - rightly so in some respects given that they have a duty to ensure their pensioners' money keeps up with the market. But it also leads to some odd distortions and a tendency to invest disproportionately in UK domiciled companies. In today's increasingly global economy, this is a silly and outdated approach to investment.

At root, however, this is caused not by the stupidity of pension trustees, but by the madness of the indices. The index we all watch, the FTSE 100, is not really representative of anything any longer. A mix of pure UK plays and large multi nationals that have more in common with the constituents of the Dow Jones Industrial Average than the great bulk of British companies, it ought to be consigned to the dustbin of history.

There is an urgent need for new indices against which investors can benchmark themselves - an index of global companies that includes foreign as well as British concerns, and much better thought out national indices.