Solactive introduces Intuitive Beta index suite with three thematic launches

Sep 12th, 2017 | By | Category: ETF and Index News

Frankfurt-based index provider Solactive has launched the Solactive Intuitive Beta Index family by rolling out three smart beta indices constructed around themes including workforce efficiency, value investing and corporate longevity. Each of the indices target exposure to its specific theme within the US large cap equity universe.

Solactive introduces Intuitive Beta index suite with three thematic launches

Solactive introduces Intuitive Beta index suite with three thematic launches.

Timo Pfeiffer, head of research at Solactive, commented: “With Intuitive Beta we are building a whole range of investment strategies targeted at index-linked products, such as ETFs, in which we go beyond purely quantitative screens. Providers are also seeking a storyline behind the strategies they deploy in their products. With this in mind, Intuitive Beta promotes an approach based on intuitive and straightforward stories that should of course also translate into performance.”

Each index is composed of the 100 stocks drawn from the Solactive US Large Cap Index which best provide exposure to the underlying theme. The indices are reconstituted annually in May and components of the index are assigned an equal weighting as of the reconstitution date.

The Solactive Workforce Efficiency US Large Cap Index is based around the notion that quality of human capital is a key resource in differentiating a good company from an outstanding company. Solactive notes that workforce efficiency is especially important in labour-intensive industries where the success of the firm is more closely tied to its workforce, as opposed to capital-intensive industries where performance is more dependent on factors such as property, plant & equipment.

Solactive seeks to generate exposure to the companies with superior output per employee, compared to the general economy, by first applying an operating cash flow filter – operating cash flow divided by total number of employees. The second filter uses a variant of labour output – net income divided by labour cost per employee.

The Solactive P/E Ratio US Large Cap Index provides exposure to undervalued US companies, as measured by their P/E ratios. Solactive notes that, as undervalued stocks have historically tended to outperform those with high P/E ratios, the index simply targets stocks with the lowest P/E ratios from the parent index as of the annual reconstitution date.

Using back-tested data for 2004-2017, the index has shown an annualized return of approximately 10.2% compared to 8.1% for the Solactive US Large Cap Index. Past results are however not a guarantor of future performance.

Lastly, the Solactive US Established Companies Index selects the 100 oldest companies from the parent index. Solactive calls these firms “time-proof”, noting that the average age of a company within the index is 159 years. Solactive believes these companies may represent a sound investment as they have clearly demonstrated resilience over time through repeated business cycles. Examples of constituents are Du Pont founded in 1802, Goldman Sachs in 1869, and Pfizer in 1849.

 

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