New York-based Indxx has launched a new thematic index providing exposure to companies that are catering to the basic consumption needs of food, water, and energy.
Rahul Sen Sharma, Managing Partner at Indxx.
The Indxx Basic Needs Index offers a defensive equities strategy by targeting firms offering essential products that exhibit stable demand.
According to Indxx, this strategy is especially relevant in the current environment as the health crisis and financial insecurity caused by the Covid-19 pandemic has re-affirmed the importance of need-centric spending.
Rahul Sen Sharma, Managing Partner at Indxx, commented, “Consumer behaviour changes drastically during difficult times such as the ongoing crisis. During such times, consumers strategically focus their limited financial resources on essential needs.
“Historically, it has been observed that consumers have prioritized fulfilling primary needs above everything else. Our Indxx Basic Needs Index provides exposure to companies that fulfill these fundamental requirements.”
The index is available for licensing and suitable to serve as the underlying for investment products including ETFs.
The index is a composite that is comprised of equal allocations to the Indxx Food 30 Index, the Indxx Water 30 Index, and the Indxx Energy 30 Index, rebalanced annually.
Each sub-index screens an initial universe of developed and emerging market companies with market capitalizations greater than $500 million and average daily trading values above $2m for developed market stocks and $1m for emerging market stocks.
The Indxx Food 30 Index uses FactSet industry classifications to identify companies that are involved in the manufacture, production, or distribution of food and non-alcoholic beverages, while the Indxx Water 30 Index also uses FactSet data to identify companies that provide products and services that enable consumption of water for either consumer or industrial purposes. For both sub-indices, firms must have a positive two-year compound annual growth rate in revenue to be eligible for selection.
The Indxx Energy 30 Index uses FactSet data to identify companies that are involved in the provision of energy or essential infrastructure, equipment, or services to the energy industry. Firms are ranked by their debt-to-EBITDA ratios and those in the bottom half are eligible for inclusion.
Each sub-index selects the 30 largest eligible companies and weights them by market capitalization subject to a single stock cap of 9.9%.
Indxx has rolled out several indices recently that are linked to trends associated with Covid-19. These include a ‘flexible workplace’ index and a mean-reversion strategy targeting US ‘fallen knives’.