Credit Suisse has licensed the Solactive SuperRegion Select Index, a new smart beta strategy incorporating high dividend yield shares from Asia, Europe and the US that also exhibit low historical volatility. The Swiss bank is planning to use the index as a basis for investment products such as ETFs or derivative instruments.

After years of focus on European equities, there is a clear demand for globally diversified portfolios among investors, according to Julien Bieren, head of equity structuring, Europe Middle East & Africa (Emea) at Credit Suisse. "The Solactive SuperRegion Select Index offers exposure to the three main regions (North America, Europe and Asia), and adds the potential for outperformance by overweighting the best-performing region," said Bieren. "A simple strategy with clear benefits for a retail portfolio."

The index is composed of a total of 75 shares, 25 per geographic region. Shares are selected by choosing the top securities ranked by realized dividend yield for every region and applying a historical volatility filter, whereby only the least volatile shares make it to the final index composition. In addition, the construction rules require that the region with the highest performance in terms of weighted returns, is assigned an index weight of 50%, while the other regions are allocated a weight of 25%, respectively.

Astrid Ludwig, head of indexing at Solactive said the depth and liquidity characterising some capital markets in these regions represent an invaluable resource for investors. "Asia, Europe and the US are home to the most important financial centres in the world," said Ludwig, in a statement. "The Solactive SuperRegion Select Index can provide investors with the possibility of taking advantage of potential regional momentum trends, while seeking to avoid geographical concentration."

Ludwid said there is growing demand for smart beta strategies from structured products manufacturers over the last few years. "High dividend low volatility concepts are very interesting for structured product providers, as they can serve as the basis for cost efficient products," she said. "We are also seeing growing demand for more diverse products, including concepts of diversification over several regions, such as the Super Region Select Index, but also over asset classes, i.e. multi asset products."

According to Bieren, given the embedded low volatility tilt, the Solactive SuperRegion Select Index is particularly well-suited for investors looking to benefit from upside participation as well as downside protection. "The Solactive SuperRegion Select Index applies a straightforward allocation methodology overweighting the best-performing region, whilst reducing the cost of downside protection via a low volatility tilt," he said. "The index is therefore particularly suited for those investors looking for medium to long-term equity exposure, with the additional benefits of dynamic regional allocation and potentially capital protection. We are structuring both traditional protected products and leveraged solutions on the index."

Bieren also said that investors have shown a clear interest in strategies offering them not only a globally diversified exposure, but also the real possibility of outperforming a static portfolio which is also why this kind of smart beta index fits passive products.

"The shift from active to passive investing has resulted in large concentrations on the benchmark indices," said Bieren. "Smart beta strategies allow investors to diversify their equity exposure away from those passive benchmarks, without incurring the higher fees of an actively managed fund. The combination of ETF wrapping and smart beta index format is perceived as a win-win by many investors, both institutional and retail."

The Solactive SuperRegion Select Index is available as a Price Return (PR) index denominated in EUR. The 75 composing shares are weighted according to the inverse of the 12-month historical volatility. The index is adjusted quarterly and is based on 100 at the close of trading on the start date, 12th of November 2003.

The Solactive SuperRegion Select Index has also been licensed to AXA Belgium which is marketing the Optinote super region switchable, a ten-year fully protected flip flop/uncapped call note offering 100% participation in the performance of the index.

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