Solactive launches digital economy index

Mar 14th, 2017 | By | Category: ETF and Index News

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Frankfurt-based index provider Solactive has launched the Solactive Digital Economy Index, which tracks the performance of 50 European stocks whose business models are likely to impacted by the process of digitisation. The index also has a smart beta tilt built in, with composition weighted towards high dividend, low volatility stocks.

The index tracks the performance of high dividend, low volatility stocks within seven themes identified as having high exposure to digitisation.

Henning Kahre, Head of Research Solactive AG, said, “With the Solactive Digital Economy Index, we are expanding our range of indices that combine smart beta elements with thematic investing. We are excited to offer investors exposure to a diversified basket of European companies active in industries subject to significant changes, which create opportunities.”

The selection universe for the index comprises the 675 largest companies in Europe. Solactive have identified seven themes based on industry classification that have the highest exposure to digitisation including biotechnology, media & aerospace, financial services and information technology. Stocks within these themes are then filtered for high dividends and low volatility, before a maximum of 10 from each theme is added to the final index. Constituents are then weighted by inverse volatility.

The index has been licensed to Belfius as the underlying for structured products. Geert Gielens, PhD, Chief Economist at Belfius Bank & Insurance, said, “Digital is the buzz word nowadays and the corporate world will embrace it more and more as it leads to productivity gains when technology advances. The Solactive Digital Economy Index includes companies that perform strongly on this theme in such a way that it ties a sound principle such as economy-wide diversification to low volatility and high dividend.”

The index is calculated as a price return index denominated in EUR and is rebalanced quarterly. Switzerland currently has the highest country weighting in the index with 21%, followed by France (13%), Spain (12%) and Belgium (9%). The largest constituent is Cofinimo at 2.69%, highlighting how using an alternative weighting system can help avoid excessive concentration that can be a feature of market cap weighted indices.

Source: Solactive

The index has returned 2.9% per annum on back-testing to 2006 with an annualised volatility of 15%, and is up 3.9% YTD as of 13th March. Solactive has approximately $100 billion invested in products linked to its indices, primarily through over 250 ETFs.

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