S&P DJI launches European factor rotation index

Feb 6th, 2019 | By | Category: ETF and Index News

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S&P Dow Jones Indices has launched the S&P Europe 350 Economic Cycle Factor Rotator Index.

Vinit Srivastava, Managing Director, Strategy and Volatility Indices at S&P Dow Jones Indices

Vinit Srivastava, Managing Director, Strategy and Volatility Indices at S&P Dow Jones Indices.

The index provides Europe-focused exposure and rotates across four distinct factor strategies based on changes in business and economic cycles.

Each of the four factor strategies – momentum, value, buyback, and low volatility/high dividend – is represented by its own sub-index derived from the parent S&P Europe 350 Index.

This parent universe represents large-cap equities performance across 16 developed market countries in Europe, including the UK.

The index utilizes the OECD Europe Composite Leading Indicator (CLI) as a signal to determine when to change factor strategy by rotating sub-index.

The CLI is designed to provide early signals of turning points in business cycles by identifying fluctuation of economic activity around its long-term potential. Turning points of the CLI have historically tended to precede those of business cycles by around six to nine months.

On a monthly basis, the index allocates to one of the four sub-indices depending on the level of the economic indicator as well as the directional change in the indicator.

The index is also available in a risk-controlled version. Under this version, each of the four sub-indices consists not only of the relevant S&P Europe 350 factor index but also includes exposure to Euro-Bund futures and EURIBOR interest rates in a bid to maintain a target volatility of 6%.

The index is the latest addition to S&P DJI’s series of rotator indices. The suite also includes indices targeting the US and Asian equity markets.

Vinit Srivastava, Managing Director, Strategy and Volatility Indices at S&P Dow Jones Indices, commented, “We are pleased to tailor this unique factor-based index for the European market following earlier launches in Asia and the United States. The growing demand for these rotator indices reflects investors’ appetite for index-based solutions that can adjust to major business and economic moves.”

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