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Stoxx, a leading European index provider and a major supplier of equity indices to exchange-traded funds (ETFs), has expanded its line-up of emerging markets exposure indices with the launch of the Stoxx Europe 600 EM Exposed Index.
The new index represents those companies within the Stoxx Europe 600 Index that derive a substantial part of their revenues from emerging market countries, thus providing exposure to these growing markets through potentially less risky liquid developed market securities.
The index is designed to act both as a performance benchmark for actively managed funds, and as an underlying to ETFs and other investable index-linked products.
Hartmut Graf, chief executive officer of Stoxx, said: “With the launch of the Stoxx Europe 600 EM Exposed Index we are applying our innovative EM exposed index concept to our flagship benchmark index. The Stoxx EM Exposed Indices offer market participants a new way to include emerging markets exposure in their portfolios, through an investment into highly liquid developed market companies.”
The Stoxx Europe 600 Index, the starting universe for the new index, is composed of 600 stocks representing the large-, mid- and small-capitalization segments of 18 European markets: Austria, Belgium, Czech Republic, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom.
Stoxx then determines how much of each constituent’s revenue is derived from non-developed markets. Geographic revenue splits are collected from annual reports. To further assign the reported revenues to individual countries, Stoxx in addition uses the publicly available United Nations Commodity Trade Statistics Database (UN Comtrade), which contains manufactured goods exports data on each country.
Should a company not report any of the required data, 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 emerging market 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 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 capitalization and the exposure factor.
The index is calculated in price, net and gross return versions, and available in euro and US dollars. The index is reviewed annually in September, using the latest available data from annual reports and UN Comtrade and World Bank.