Stoxx introduces multi-factor smart beta index suite

Oct 21st, 2015 | By | Category: ETF and Index News

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Stoxx Limited, the European index provider, has introduced the STOXX Select and STOXX Diversification Select index families, a suite of multi-factor smart beta indices which harness the low volatility and dividend yield factors in search of improved risk-adjusted returns.

Stoxx introduces multi-factor smart beta index suite

Hartmut Graf, chief executive officer of Stoxx Limited.

The STOXX Select and STOXX Diversification Select index families have been designed as liquid underlyings for financial products such as exchange-traded funds and structured products.

These new indices are based on broader Stoxx parent indices and measure the performance of companies with low volatility and high dividend yield. In the case of the STOXX Diversification Select Indices, the methodology also favours constituents with low correlations to improve diversification.

This multi-factor selection methodology, coupled with a volatility-based weighting scheme, tilts the indices towards factors which have historically produced improved risk-adjusted returns, namely low volatility and dividend yield, versus market cap-weighted benchmarks over long-term time horizons.

“Stoxx, as the marketing agent for the DAX indices, is the leading index provider in the structured products space, both in Europe and on a global level,” said Hartmut Graf, chief executive officer, Stoxx Limited. “Drawing from this extensive experience, we have now introduced the STOXX Select and STOXX Diversification Select Indices, which meet both structured products issuers and end-investor needs by introducing screens for low volatility, high dividends and low correlation, paired with an inverse volatility weighting scheme.”

The universe for each index in the STOXX Select and STOXX Diversification Select families is the respective parent index. For the STOXX Select Indices, all companies are screened for data availability and liquidity. From the remaining stocks, those with high volatility are excluded, and those with high dividend payments are selected. For the STOXX Diversification Select Indices, an extra screening is added as a first step: those stocks whose average correlation with other stocks from the base universe is too high are excluded as well. The selected constituents in the indices are then weighted according to the inverse of their volatility, with a cap at 10%.

Both index suites are available in a range of regional, country and thematic variations including global, international, emerging markets, and environmental, social and governance (ESG) based indices.

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