S&P DJI launches low volatility smart beta index designed to closely track the S&P 500

Dec 7th, 2015 | By | Category: ETF and Index News

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S&P Dow Jones Indices (S&P DJI), one of the world’s leading providers of financial market indices and a major player in the exchange-traded funds industry, has announced the launch of the S&P 500 Low Volatility Target Beta Index which has been designed to track the S&P 500 Low Volatility Index but maintain the same level of market risk as the S&P 500.

S&P DJI launches low volatility smart beta index designed to closely track the S&P 500

The new index tracks a low volatility exposure to the 500 largest and most influential US-listed companies, leveraged to maintain a similar level of market risk as the S&P 500.

The rules-based and liquid nature of the index makes it an ideal candidate as the basis of index-linked products such as exchange traded funds and structured products. The new index has been licensed to Natixis for product development.

The S&P 500 Low Volatility Target Beta Index uses a beta-driven weighting scheme. The new index includes a leverage factor that changes based on realised historical beta with the aim of bringing the beta of the index close to that of the S&P 500. At each monthly rebalancing, the weight for the S&P 500 Low Volatility Index is set proportional to the inverse of its beta.

“The S&P 500 Low Volatility Target Beta Index is a dynamic index,” commented Vinit Srivastava, Senior Director, Strategy Indices, S&P Dow Jones Indices. “The index measures the performance of low volatility stocks within the S&P 500, while maintaining the S&P 500’s level of overall market risk.”

Through leveraging the returns of the Low Volatility Index, the Target Beta Index can provide returns which benefit from the historical outperformance that low volatility strategies have exhibited, while participating fully in upside and downside potential of market movements. This could be of particular interest to investors who are constrained by tracking error to the returns of the S&P 500.

“This new index is a simple illustration of a dynamic exposure strategy applied to a growing investment theme, in this case the low volatility concept,” added Sam Rosenberg, Head of Equity Derivatives Sales and Financial Engineering for the Americas at Natixis. “Natixis Sales and Financial Engineering is excited to develop and launch products based on the S&P 500 Low Volatility Target Beta Index, bringing a potentially compelling indexed solution for both long only and yield seeking investors in US equity.”

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