Solactive launches UK Domestic Index

Jul 22nd, 2016 | By | Category: ETF and Index News

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Niche index provider Solactive has launched a new index tracking UK listed companies whose revenues are primarily generated in the UK. The index is likely to provide the basis for products such as exchange-traded funds, certificates and swaps.

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Henning Kahre, Head of Research, Solactive.

The Solactive UK Domestic Index targets investors who are interested in the UK domestic market, which is the second largest market in Europe by GDP.

The launch of the index comes a month after the EU Referendum result, which saw Britain vote to leave the European Union.  Given the UK is the second largest market in Europe by GDP the index will allow investors to focus on a basket of companies that are less dependent on international revenues.

Henning Kahre, Head of Research at Solactive, said in a statement: “London is one of the most important financial centres in the world and a listing on the LSE is therefore an attractive gateway to capital markets. That is especially true for international companies in the energy & mining space that are most often not UK companies in a traditional sense but that are still included in UK benchmarks due to listing. The new Solactive Index on the contrary provides investors with true exposure to the UK economy.”

The index will compete against other major UK-focused indices, which include a large number of multinational companies that don’t generate income domestically. This is especially the case for listed companies in the energy and mining sectors where revenues are mainly derived from operations outside the UK, according to a note from Solactive.

It continues: “The top 20 companies by market cap listed on the London Stock Exchange have an average UK-based revenue of 18%, with only one company generating all of its income in the UK and approximately a third of them generating less than 5% of the revenues domestically. Therefore, the performance of major UK indices is influenced by companies who do not necessarily depend on the state of the UK economy for their revenue generation. The Solactive UK Domestic Index instead gives investors the opportunity of being more directly exposed to the UK domestic market.”

The index incorporates the 50 UK listed (“LSE”) companies with the highest share of total revenue generated in the UK. The Solactive UK Domestic Index is equally-weighted and it is a Net Total Return index, meaning that dividends are reinvested into the index after deduction of withholding tax. The composition of the index is readjusted semiannually.  The index is calculated in GBP and is based on 100 index points at the close of trading on 17 December 2010.

Most recently Solactive teamed up with fund specialist Sarasin & Partners to launch a range of smart beta equity indices.

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