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Stoxx, a leading European index provider and supplier of equity indices to exchange-traded funds (ETFs), has introduced the iStoxx Global ESG Select 100 Index.
The new index screens the components of the Environmental, Social and Governance (ESG) compliant Stoxx Global ESG Leaders Index for high dividend paying companies which also have low volatility, thus creating a hybrid portfolio of ESG, maximum dividend and low volatility strategies.
It is designed to act as an underlying to ETFs and other index-linked investable products, such as structured products.
Hartmut Graf, chief executive officer of Stoxx, said: “Part of the research done by Stoxx centres around the low volatility anomaly, where low volatility companies have historically produced higher returns than high volatility companies, although the opposite would have been expected.”
He added: “Within this research, we have discovered that the historical performance of dividend indices can be significantly enhanced when adding screens for low volatility components. In our new iStoxx Global ESG Select 100 Index, we combine the outcome of this research with a screen for ESG, creating a hybrid index concept for ESG conscious market participants, who are also looking for high dividend payments and low volatility in an index component.”
The parent Stoxx Global ESG Leaders Index is a fully transparent equity index with components selected based on a comprehensive set of sustainability ratings, as provided by Sustainalytics. The new index includes those companies out of the underlying index which pay the highest dividends and, at the same time, have the lowest volatility.
To identify these companies, constituents are ranked in ascending order by their volatility. Simultaneously, they are also ranked in descending order by gross dividend yield. An average rank is calculated out of those two, and companies are then sorted by this average rank. In the case that two companies end up with the same rank, the one with the lowest volatility will be assigned the better rank. Out of the final list, the top 100 companies are selected for inclusion in the index.
The index is weighted by free float market cap, with a single component’s weight cap of 10 percent. The index is reviewed annually in September after the review of the underlying index, and rebalanced quarterly in March, June, September and December.
It is calculated in price, net and gross return versions and available in EUR, GBP and USD. The Euro/price return version will be available real time, while all other index versions will be calculated at the end of day. Daily historical data is available back to September 20, 2004.