Stoxx adds daily currency hedged version to key benchmarks

Stoxx has rolled out daily currency hedged versions of the Eurostoxx 50, Eurostoxx, Eurostoxx Select Dividend 30, Stoxx Europe 600 and Stoxx Europe Select Dividend 30 indices.

The new range has been designed with asset managers and structured products providers in mind as the new currency hedged indices provide “enormous benefits” to those manufacturers looking to provide exposure to pure returns from underlying securities by neutralising the impact of associated fluctuations caused by currency rates, said Christian Bahr (pictured), head of product development at Stoxx.

“For structured products providers, if they do not have a currency hedged index as an underlying, they may have to create a hedge to neutralise currency impact, which in turn could increase a product’s complexity and the costs for the final investor,” said Bahr. “By using a currency-hedged index as an underlying, the process is simplified and much more transparent for the investor.”

The new Stoxx Daily Currency Hedged Indices replicate a hypothetical investment portfolio designed to represent returns of the underlying index while hedging currency risk on a daily basis, but not the underlying constituent risk.

Market participants who use a currency-hedged investment strategy are willing to forgo potential currency gains in exchange for a reduction in the risks associated with foreign exchange fluctuations. To achieve this, the index combines the performance of the underlying index with a hypothetical, rolling investment into foreign exchange forward contracts. These contracts have a one-month expiry and their amount is adjusted daily to reflect the change in the notional amount being hedged, as a consequence of appreciation/depreciation of the underlying index, as well as the change in relative weight of the currencies composing the underlying index.

In addition to the newly launched indices, Stoxx is also offering a set of monthly currency hedged indices, shown in the table below.

The UK sterling and US dollar hedged versions of the Eurostoxx 50 Index have been licensed to Lyxor ETF, to underlie two exchange-traded funds, both of which are available on London Stock Exchange.

There are over 390,000 linked to the Eurostoxx 50, more than 1,300 products linked to the Eurostoxx SD30, a more than a handful (17 products) linked to the Stoxx Europe 600, according to SRP data.