ETFWorld.co.uk
Image default

Stoxx launches Minimum Variance Index for Europe

New index initiated by and licensed to Ossiam to underlie exchange-traded fund

 


Sign up for our weekly Newsletter and receive the latest ETF and ETC news.

Click here to register for your free copy


STOXX Limited, announced the launch of the iSTOXX Europe Minimum Variance Index. The new strategy index uses Harry M. Markowitz’ Nobel Prize winning Modern Portfolio Theory to create a hypothetical, long-only risk-optimized portfolio that selects and weights constituents of the STOXX Europe 600 Index in such a way that the portfolio’s expected variance is minimized.

The iSTOXX Europe Minimum Variance Index has been initiated by and licensed to Ossiam to underlie an exchange-traded fund. The new index also is the first offering to be categorized under the iSTOXX brand, and complements indices launched previously by Deutsche Börse AG that follow a similar methodology and are now being maintained and marketed by STOXX Limited.

“The launch of the iSTOXX Europe Minimum Variance Index marks two important steps for STOXX. First, the new index offers market participants access to an innovative concept that applies Markowitz’ Modern Portfolio Theory to the renowned European benchmark index,” said Hartmut Graf, chief executive officer, STOXX Limited. “Second, the new index is the first one to be launched under the iSTOXX brand, which is designed to enhance transparency and client service.”

“The methodology of the iStoxx Europe Minimum Variance Index, initiated by Ossiam’s quantitative Research and Investment team, combines the best attributes of passive and quantitative management,” said Fabien Dornier, Chief Investment Officer of Ossiam. ” “The launch of the iSTOXX Europe Minimum Variance Index provides investors with an efficient portfolio management tool.”

The stocks included in the iSTOXX Europe Minimum Variance Index are selected and weighted primarily according to their variance and correlation with each other. At each rebalancing date, an algorithm is applied that estimates the covariance matrix of the most liquid components of the STOXX Europe 600 Index based on their recent trading history. Based on this matrix, the component weights in the iSTOXX Europe Minimum Variance Index are defined in such a way that the overall volatility in the iSTOXX Europe Minimum Variance Index is minimized.

Certain considerations are factored into the algorithm, including a sector weighting cap of 20%, a single component weighting cap of 4.5%, as well as a diversification constraint that guarantees a sufficient number of stocks are included in the Index. These constraints lead to a variable number of components in the iSTOXX Europe Minimum Variance Index, generally around 80.

The index is rebalanced on a monthly basis. The index value is adjusted to reflect the transaction costs which result from the rebalancing. The iSTOXX Europe Minimum Variance Index is calculated in real-time and available in euro.

In February 2011, STOXX introduced a new classification system based on four categories of index offerings. The system aims to provide market participants with optimal transparency and easy allocation for a rapidly growing product range. The STOXX and STOXX+ brands are labeling indices from the global index family, indicating that all these indices are available with consistent methodologies on a global scale. The iSTOXX brand also comprises completely rules-based index concepts that are typically not (yet) available on a global scale. In addition, and in order to provide maximum access to its indices, iSTOXX branded indices can go beyond the harmonized global methodology in order to take into account specific market requirements.

Source: ETFWorld – STOXX Limited

 

Articoli Simili

Solactive partners with ESG provider Truvalue Labs to create a new line of AI-driven ESG Indices

Falco64

Solactive partners with ESG provider Truvalue Labs to create a new line of AI-driven ESG Indices

Webmaster

Solactive releases new line of ESG benchmark indices with ESG provider ISS ESG

1admin