Investors are clamoring for more exchange traded products that go beyond traditional beta indexing methodologies, and to meet the growing demand, index providers are crafting new “smart-beta” indices.
For instance, STOXX Limited introduced the iSTOXX Global ESG Select 100 Index this week, according to a press release. The index was designed to act as an underlying benchmark for ETFs or other investable products.
The new index marries to popular long-term investment strategies: low-volatility stocks and dividend stocks.
“Part of the research done by STOXX centers 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,” Hartmut Graf, chief executive officer, STOXX Limited, said in the press release. “Within this research, we have discovered that the historical performance of dividend indices can be significantly enhanced when adding screens for low volatility components.”
STOXX will screen stocks based on a comprehensive set of sustainability ratings and include components that show the highest dividends while exhibiting the lowest volatility.
Consequently, stocks are ranked in ascending order based on volatility and descending order based on gross dividend yield.
The universe of enhanced, smart-beta indices has grown to 377 U.S.-listed ETFs, with $161.9 billion in assets under management. There are currently 1,533 U.S.-listed ETFs on the market with $1.6 trillion in assets. [‘Smart-Beta’ ETFs Provide Active Strategies in a Passive Wrapper]
For more information on indices in ETFs, visit our indexing category.
Max Chen contributed this article.