S&P Dow Jones launches low-volatility Nordic index

May 30th, 2013 | By | Category: ETF and Index News

S&P Dow Jones has again added to its rapidly expanding suite of indices with the launch of the S&P Nordic Low Volatility Index.

S&P Dow Jones launches low-volatility Nordic index

The newly launched S&P Nordic Low Volatility Index provides exposure to Denmark, Finland, Norway and Sweden.

The index seeks to measure the performance of the 30 least volatile stocks in the S&P Nordic Broad Market Index (BMI). The countries included in the S&P Nordic BMI are Denmark, Finland, Norway, and Sweden; it currently has 339 constituents.

The new index further enhances the firm’s existing low-volatility index family, which includes, among others, the popular S&P 500 Low Volatility Index, underlying to the $4.7 billion PowerShares S&P 500 Low Volatility Portfolio ETF (SPLV).

The launch reflects continued investor interest in low-volatile equity strategies and comes just weeks after it rolled out a South Korean version of the index, the S&P Korea Low Volatility Index.

So far this year exchange-traded funds (ETFs) linked to low-volatility indices have been among the industry’s best selling products – gathering some $6.5 billion in net new assets in the first quarter of 2013 – as investors have sought exposure to equity markets whilst maintaining a degree of protection against further spikes in market risk.

Similar to the methodology of other S&P Low Volatility Indices, the constituents of the new index are weighted relative to the inverse of their corresponding volatility, with the least volatile stocks receiving the highest weights. Volatility is defined as the standard deviation of the security’s daily price returns over the prior 252 trading days.

Commenting on the launch, Vinit Srivastava, Senior Director of Strategy Indices at S&P Dow Jones Indices, said: “The transparent and simple methodology used in the construction of the S&P Nordic Low Volatility Index has resonated with market participants. This index is designed to serve as a benchmark for low-volatility strategies in the Nordic equity market while potentially serving as the basis for future investment products.”

Despite the boom in low-volatility strategies, as yet there aren’t any ETFs providing dedicated low-volatility exposure to the Nordic region. Of course, one reason behind this may have been the lack of a suitable index. Given the relative appeal of the Nordic region, especially so-called safe havens such as Norway and Finland, the index will likely be considered by ETF providers.

Possible candidates for a launch include Xact, the region’s leading ETF provider, Paris-based Ossiam, which has a strong pedigree in the low-volatility ETF space, and, of course, iShares, PowerShares and SPDR.

Investors looking for immediate exposure to the region could consider the Amundi ETF MSCI Nordic (CN1). This fund tracks the performance of approximately 85% of the Nordic equity market by market capitalisation, comprising around 80 holdings from Denmark, Finland, Norway and Sweden. It is cross-listed on all the main European exchanges.

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