S&P Dow Jones Indices (S&P DJI) and independent wealth adviser W.E. Donoghue & Co. have partnered up on two new custom indices. S&P DJI has been chosen by the adviser to be the calculation agent for W.E. Donoghue’s Power Dividend Developed International Index and Power Dividend Mid-Cap Index, which are custom client-owned hybrid indices. S&P DJI will screen for constituents and act as an actual constituent of the indices.
“Our intent is to go down the path to create a tactical dividend yield suite,” said Jeffrey Thompson, president of W.E. Donoghue. “Our hope is to offer solutions through our advisers to provide a means of de-risking in this environment of extremely low interest rates where bonds do not offer as much of a cushion for non-correlation as they have done in the past.”
Custom indices are a key to a registered investment advisor’s (RIA) brand strategy according to Michael Mell (pictured), director of custom indices at S&P DJI. “An independent wealth adviser can create a custom index to leverage the power of being able to blend their own unique investment philosophy with the transparency and methodical index-based passive investing; in short it is part of the ‘smart beta’ revolution.”
According to W.E. Donoghue's methodology the Power Dividend Developed International Index is a rules-based index that measures high yielding dividend paying stocks in the developed international markets when in a bullish position. When in a bearish position the index can de-risk from broad international stockmarket declines by tactically shifting to short-term treasuries using mechanical trend-following techniques.
The Power Dividend Mid-Cap Index calculates high dividend-paying stocks in the mid-cap asset class when in a bullish position. When in a bearish position this index uses a similar de-risking strategy as the Power Dividend Developed International Index, also shifting to short-term treasuries.
“We are willing to catch a little bit of volatility and take the first 20% of downside risk, but we want to protect anything above and beyond that,” said Thompson. “We want to protect against the catastrophic bear markets we’ve seen recently where the market drops by 50%.”
S&P DJI is the calculation agent for more than 6,000 headline custom indices that are calculated daily for over 150 clients in 45 countries for investment banks, asset managers, asset owners, financial advisers and ETF providers, with RIAs the fastest-growing custom segment in North America, according to Mell.
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