NYSE Euronext has expanded its range of indices with the launch of the CAC Low Risk Index and the AEX Low Risk Index. These low-risk indices, developed in partnership with Brussels-based investment consultants Finvex Group, are based on successful European national blue-chip indices and offer new risk-adjusted investment possibilities for investors and exchange-traded fund (ETF) providers.
With the introduction of these new low-risk indices, NYSE Euronext is responding to growing demand from institutional investors for smart risk-controlled products, and follows rival index providers including FTSE, MSCI, STOXX and S&P Dow Jones, who have all introduced low-volatility indices.
The SBF 120 Index, which tracks the 120 most actively traded stocks listed on the Euronext Paris, will serve as the basis for the CAC Low Risk Index, while the AEX and AMX indices, which combined track the leading 50 companies listed on the Euronext Amsterdam, will serve as the basis for the AEX Low Risk Index.
The number of constituents in the CAC Low Risk Index can vary between 25 and 50, but most of the time will be around 45-50 constituents, while the number constituents in the AEX Low Risk Index will be between 20 and 30. To determine which constituents of the parent SBF 120 and AEX and AMX indices will be included the low-risk indices, an optimised stock selection method is applied based on advanced risk forecasting methodologies. The optimised selection and subsequent weighting of constituents aims to lower the overall risk of the index compared to traditional indices, which typically weight constituents according to market capitalisation. The net result of this approach is more stable returns and improved performance.
Commenting on the launch, George Patterson, Head of NYSE Euronext’s European Indices Group, said: “Given the current challenging economic and financial environment, we are very pleased to be able to offer investors, in partnership with Finvex, the opportunity to reduce their market risk and volatility, thanks to these new Low Risk Indices. Due to the advanced risk-adjusted technology we are able to extend our successful CAC and AEX index series and provide their respective markets with an optimised market risk strategy reducing volatility and drawdowns in declining markets.”
Benedict Peeters, co-founder of Finvex Group, added: “Indices based on robust risk-reduction technology are an attractive alternative or complement to traditional benchmarks that generally do not include any risk element. NYSE Euronext’s high-quality platform is now including these advanced solutions and we are confident their client base will start tracking or using these indices in the near future.”
The CAC Low Risk Index and AEX Low Risk Index are the first low-risk indices based on these markets to be launched by a major index provider and, as such, will likely prove popular with French and Dutch investors.
The two indices are also the first low-risk indices to target country-specific equity markets within the Eurozone. Previously, investors looking for this kind of benchmark were limited to the EURO STOXX+ Minimum Variance and EURO iSTOXX 50 Equal Risk indices, or to broader European indices such as the MSCI Europe Minimum Volatility Index, the FTSE Developed Europe Minimum Variance Index, and the S&P Europe 350 Low Volatility Index.
While NYSE Euronext has designed these products with ETF providers very much in mind, investors will have to wait until such a fund is launched. In the meantime, however, investors looking for a lower-risk European equity solution could consider the Lyxor ETF EURO SMARTIX iSTOXX 50 Equal Risk (ERC) or the Ossiam ETF iSTOXX Europe Minimum Variance NR (LEMV).