Stoxx Limited has launched the Euro iStoxx High Dividend Low Volatility 50 index, a new smart beta index which measures the top 50 stocks in the Eurostoxx index based on high dividend yield and low volatility. The index has been licensed to Invesco PowerShares to underlie an exchange-traded fund (ETF) which has been listed today on London Stock Exchange (LSE) and will be cross-listed at other European exchanges in the coming months.
Konrad Sippel (pictured), global head of business development at Stoxx, said Invesco's decision to license the new benchmark is a reflection of the momentum around smart beta strategies. "We see no indication that the demand for smart beta is decreasing," said Sippel. "With more and more investors looking to replace active strategies with more cost efficient passive options this in turn continues to create demand for passive instruments including ETFs and structured products and in addition also passive mandates."
There are 121 structured products with US$1bn of estimated assets benchmarked to iStoxx indices listed on SRP's database. The iStoxx Europe Next Dividend Low Risk 50 index remains the most popular Stoxx smart beta indexs among structured products providers with over 60 products marketed across jurisdictions followed by the iStoxx Europe Select High Beta 50 index (18 products), and the iStoxx Global ESG Select 100 index (11 products).
Smart beta equity exchange-traded funds and products (ETFs/ETPs) listed globally gathered US$3bn in new assets in October and US$53.7bn in the first 10 months of 2015, according to ETFGI. This included 764 smart beta equity ETFs/ETPs, with 1,336 listings and assets of US$399bn, from 106 providers listed on 31 exchanges in 27 countries. However, Sippel believes these strategies will continue to be popular in the non-listed structured products market. "As an index provider we are agnostic to the type of wrapper the index is being replicated with," said Sippel. "What is important is that the strategy fits for the end investor. Structured products often offer additional structures to end investors and also demand slightly different index construction. We continue to see strong demand for both wrappers."
Sippel also said that Stoxx is currently working on a number of new smart-beta solutions as well as considering applying factor investing to other assets which will result in further structured products and ETFs being launched. "In general we expect to see more solutions including ESG components combined with smart-beta elements," said Sippel. "I would also expect smart-beta concepts to emerge in other asset classes."
The selection universe for the Euro iStoxx High Dividend Low Volatility 50 index is defined as all stocks in the benchmark Eurostoxx index. All companies in the Eurostoxx Index are screened for their 12-month historical volatility and 12-month historical dividend yield. Stocks are ranked in descending order based on their 12-month historical dividend yield, and the top 75 are selected for further screening, with a maximum of 10 companies per country. The companies are then ranked according to their 12-month historical volatility in ascending order, and the top 50 stocks are selected for the index. The index is capped at a 3 percent maximum weighting per component.
The Eurostoxx index represents a variable number of large, mid and small-cap stocks of 12 Eurozone countries: Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain. It is a subset of the benchmark Stoxx Europe 600 index.
Bryon Lake, head of Invesco PowerShares, Europe, Middle East & Africa (Emea), said in a statement that "recent asset flows have shown, dividend strategies and low volatility strategies are two of the most popular factors used as smart-beta investments".
Stoxx announced in November 2015 that the number of structured products based on its indices had risen by 70.2% to 73,746 at the end of Q3 2015, compared to Q3 2014. The number of structured products based on Stoxx and Dax indices also rose 80.2% to 509,633 in the same period. SRP data has recorded over 64,500 tranche-based structured products featuring Stoxx's indices and over 3,600 featuring the German Dax index.
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