Solactive and UBS have collaborated for the launch of the Solactive Swiss Family Owned Companies Index. The index, which was launched on January 9, 2017 and is used as the underlying for UBS's open-ended Perles tracker certificate, tracks the price movements of publicly traded family-owned companies domiciled and listed in Switzerland.
The idea for the index originates from a research report about family controlled businesses and their long-term performance and profitability which was published in 2015 by the UBS global research department, according to Robin Lemann (pictured), head public distribution Switzerland, UBS. "From that research paper we picked up the theme, firstly within UBS internally, and, after a few evaluations, we actually decided that we wanted to provide an index solution," said Lemann.
Around the same time, Solactive was looking at the family-owned companies theme. "We had been looking at indices that focus on the type of shareholder, in this specific case, how can we create an index around a theme of long-term planning horizon, anchor investor, etc.," said Henning Kahre, head of research at Solactive. "So, we had been digging into the family-owned companies theme on a separate note and when UBS approached us after their positive internal feedback we decided to collaborate with them to try and find the best possible way of making the idea investable via an index."
The Swiss Family Owned Companies Index is a spin-off of the Global Family Owned Companies Index which was launched by Solactive in September 2015, and with Euronext announcing the launch of the Euronext Family Business Index next month (February 21), indices linked to family businesses are suddenly back in vogue.
"The beauty of the concept is that you can basically apply it to any single country or region," said Kahre. "That, of course, means that there is a lot of potential for an index provider because you are not developing an index methodology which is applied to one market but you can roll it out globally."
Solactive has also been been active in the founder-run companies' space. In July 2015 the German index provider launched the Solactive Founder-run Companies Index, which, according to Kahre, is a similar concept, focusing on companies, where the founder is still the CEO. "From our experience, the whole approach of long-term planning appeals to a lot of clients and investors and we see further demand in that direction," said Kahre.
The concept of family-owned companies that have a good performance and are orientated towards the long-term is not new, according to Lemann. "What we realised was that during the years 2013 - 2015 a lot of new themes were coming up," said Lemann. "Themes such as big data, bitcoin, all these new things, and I think the timing - at the end of 2015, when we launched tracker certificates on the Global Family Owned Companies Index - was just perfect because the whole financial industry had slightly changed."
"We had very low interest rates, investors were not that sure anymore and were probably slightly overwhelmed by all the new themes and as a result started looking for more traditional themes again," said Lemann. "So I think, even though [family-owned companies] was not strictly a new theme, it was good timing, after those new mega trends."
UBS saw a lot of demand [for trackers linked to the Global Family Owned Companies Index] and decided to extend the product to the German market because there was a lot of interest there from German investors, according to Lemann. "The reason why we now issue the Swiss Family Owned Companies Index is that a lot of our internal clients were requesting a Swiss solution, with Swiss underlyings only, that's why we expanded the theme to Switzerland," said Lemann. "Whether we are going to expand the theme further towards other countries is something we need to look at. Whenever we get a request, whenever there is a market, and there are clients that would like to have this exposure we will be keen to offer a solution."
"In most cases, when there is an index on a new theme we tend to issue a tracker certificate to allow investors to participate in that theme," said Lemann. "Once that theme is more elaborated then you probably could also issue other structures, probably also to hedge the exposure, if clients are having a huge exposure, but at the moment we are not planning to have something else issued."
The Solactive Swiss Family Owned Companies Index is calculated as a Price Return and Net Total Return index denominated in Swiss franc. The index is currently composed of nine constituents weighted according to inverse volatility and the composition is rebalanced quarterly. The target weight per component is capped at 20%. Family-owned companies are defined in the index as those in which the family ownership stake is of at least 32%. In addition, companies require a minimum threshold of CHF500,000 for the three-month average daily traded value to be included as components.
Click the link to view the index guideline and the latest factsheet.
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