Hang Seng introduces smart beta factor index family

Jan 19th, 2021 | By | Category: ETF and Index News

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Hang Seng Indexes has introduced the Hang Seng Smart Beta Index Series, a family of indices reflecting the performance of various equity risk premia, namely value, momentum, quality, high yield, low volatility, and low size, exhibited in Hong Kong-listed stocks.

Hong Kong ETFs

The indices provide exposure to Hong Kong-listed stocks while tilting to six factor exposures.

The indices are derived from the parent Hang Seng Large-Mid Cap (Investable) Index universe of stocks with primary listings on the Hong Kong Stock Exchange.

Stocks in the parent index have passed a liquidity screen designed to exclude securities that are inappropriate for investment products.

The parent index currently consists of 277 constituents and comprises ordinary Hong Kong shares (29.1%), H-shares (21.9%), Red Chips (7.6%), and other Hong Kong-listed shares of companies domiciled in Mainland China (41.5%).

Index methodology

Each index in the smart beta suite first undergoes a light quality screen by excluding 20% of companies from each industry in the Hang Seng Industry Classification System with the lowest quality factor scores. According to Hang Seng, this approach was implemented based on empirical research indicating that quality preservation is important in enhancing portfolio performance across any given factor.

The remaining constituents are then assigned factor scores based on the following metrics: value (forward earnings to price, book to price, EBITDA to enterprise value); momentum (12-month close to high price); quality (return on equity, earnings per share variability, debt to equity); yield (dividend per share to price); low volatility (12-month volatility of total returns); and low size (company-level market capitalization).

Hang Seng offers two versions for each of the six single factor indices. ‘Select’ indices take a more aggressive approach to factor exposure by choosing the top 40% of stocks by factor score from each industry, while the ‘Comprehensive’ indices provide broad market coverage by including all stocks.

Constituents are weighted using a combination of their market capitalization and their factor score while maintaining industry neutrality versus the parent index and capping the weight of any single stock at 12%.

The full suite is as follows:

Hang Seng Large-Mid Cap Value Comprehensive Index
Hang Seng Large-Mid Cap Momentum Comprehensive Index
Hang Seng Large-Mid Cap Quality Comprehensive Index
Hang Seng Large-Mid Cap Dividend Yield Comprehensive Index
Hang Seng Large-Mid Cap Low Volatility Comprehensive Index
Hang Seng Large-Mid Cap Low Size Comprehensive Index

Hang Seng Large-Mid Cap Value Select Index
Hang Seng Large-Mid Cap Momentum Select Index
Hang Seng Large-Mid Cap Quality Select Index
Hang Seng Large-Mid Cap Dividend Yield Select Index
Hang Seng Large-Mid Cap Low Volatility Select Index
Hang Seng Large-Mid Cap Low Size Select Index

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