Solactive partners with Deutsche to launch volatility-optimised European sustainability index

Jan 25th, 2018 | By | Category: Equities

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Solactive, an index provider, has teamed up with Deutsche Bank to launch a volatility-optimised European equity sustainability index: the Solactive Sustainability Index Europe.

Solactive partners with Deutsche to launch European sustainability index

Timo Pfeiffer, Head of Research at Solactive.

The index, which incorporates a volatility optimisation to minimise overall risk, tracks the performance of environmentally and socially responsible European companies, based on the data-driven platform Arabesque S-Ray.

It was established in response to investors’ growing appetite for incorporating environmental, social and governance (ESG) factors in their investment strategies.

Arabesque S-Ray uses machine-learning and algorithm-based technology to rate the world’s largest listed corporations on the principles of the United Nations Global Compact: human rights, labour rights, the environment, and anti-corruption (GC Score). The algorithm-based technology systematically combines over 500 environmental, social and governance (ESG) metrics with news signals from over 50,000 sources.

Solactive then applies financial screens, such as liquidity and dividend-yield filters, to get to the final index composition.

There are 46 constituents in the index which are fairly widely spread across Europe. Its highest exposure is to the Netherlands at 13%, followed by Germany at 11%. France and Italy follow, and the remaining 57% is diversified across the rest of Europe.

Timo Pfeiffer, Head of Research at Solactive, commented: “The Solactive Sustainability Index Europe allows investors to gain access to ESG-compliant companies, while minimising the overall portfolio risk, achieved thanks to volatility optimisation.”

The index seeks to achieve a lower volatility than the Solactive Europe 675 Index benchmark and a comparable dividend yield. It also includes specific dividend-yield filters and weighs the components based on volatility optimisation. 

Its annualised performance is 7.5% and maximum drawdown is -38.3% since inception. Annualised volatility is 12.9%, also since inception. The index is published in EUR and the composition is re-adjusted annually. It is calculated in gross total return, net total return, and price return versions.

The index is a suitable underlying reference for index-linked investment products such as exchange-traded funds.

As at October 2017, Solactive had approximately $100 billion in assets linked to its indices, primarily via ETFs.

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