New index combines emerging market growth with developed market liquidity

Dec 17th, 2012 | By | Category: ETF and Index News

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Stoxx, a leading provider of financial market indices, has introduced the Stoxx Global 1800 EM Exposed Index. The new index represents those companies within the Stoxx Global 1800 Index that derive a substantial part of their revenues from emerging market countries, thus providing exposure to these growing markets through liquid developed market stocks.

Stoxx Global 1800 EM Exposed Index

Stoxx Global 1800 EM Exposed Index (as of November 30, 2012)

Designed to act both as a proper benchmark for actively managed funds and as an underlying to exchange-traded funds (ETFs) and other investable products, the index combines the benefits of higher growth rates associated with emerging markets with the superior liquidity, transparency, and lower trading costs of development markets.

“With the launch of the STOXX Global 1800 EM Exposed Index, we are offering market participants a tool that enables them to participate in the rapid growth of emerging markets, while at the same time having the comfort of investing in highly liquid and tradable developed markets securities,” said Hartmut Graf, chief executive officer, Stoxx.

The aim of the index is to identify those companies in the underlying STOXX Global 1800 Index (the index universe) that generate a substantial part of their revenues in countries that are not classified as developed markets under Stoxx’s market classification scheme.

All companies within the index universe are screened for the geographic allocation of their revenues. In a first step, all companies’ geographic revenue splits are collected from their annual reports. The percentage of the respective regional revenues generated from emerging market countries is then determined.

To do so, Stoxx uses the publicly available United Nations Commodity Trade Statistics Database (UN Comtrade), which contains manufactured goods exports data on each country. In a first step, it is determined how much of each company’s revenues, reported by region (as opposed to single countries), is derived from non-developed markets. Then a final exposure number is computed from these percentages.

Should a company not report their revenues split by regions, its exposure is approximated by a ratio of the exports from the country that the company is based in, to the sum of the country’s GDP and imports, which is then multiplied by the global EM exposure of that country. For companies that do not report sales in their home country, revenues in the home region outside of the home country are calculated by dividing the country’s exports to home region by the sum of the country’s GDP and imports.

In order to only include companies in the index which have a significant part of their revenues from non-developed markets, a final exposure threshold of 33% is set. All companies with a final exposure score that is higher than this are selected as index components, and weighted by a combination of free-float adjusted market capitalisation and exposure.

The index is calculated in price, net and gross return versions and available in euros and US dollars. The index is reviewed annually in September, using the latest available data from annual reports and UN Comtrade.

The index follows a similar concept to the Russell Geographic Exposure (“GeoExposure”) Index Series, which was launched by Russell Indexes in September earlier this year. As with the Stoxx Global 1800 EM Exposed Index, the Russell GeoExposure indices are designed to help investors gain exposure to emerging markets via developed market companies. [See Russell’s “GeoExposure” indices target emerging markets via developed market companies].

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