Stoxx introduces low risk weighted index concept
Stoxx has launched of the Stoxx Europe Low Risk Weighted 100 Index, which represents a hypothetical investment portfolio that selects those 100 components with the lowest volatility from the Stoxx Europe 600 Index.
Components are weighted reversely by their volatility in order to achieve a minimal risk in the Stoxx Europe Low Risk Weighted 100 Index: since inception (March 2001), the new index shows an annualised volatility of 13.28 per cent, while the underlying Stoxx Europe 600 Index shows a annualised volatility of 21.16 per cent over the same timeframe.
The new index is designed to act both as a proper benchmark for actively managed funds, and as an underlying to exchange-traded funds and other investable products. Further index versions covering the Euro zone, as well as for different component numbers for both regions, are also available.
“Market participants appetite for innovative, low volatility investment strategies that are following a clear set of rules is still growing,” says Hartmut Graf (pictured), chief executive officer, Stoxx. “With the launch of the Stoxx Europe Low Risk Weighted 100 Index, we are offering investors an innovative index, which is designed to single out the low-volatility stocks in Europe’s leading benchmark; thus providing exposure to this market, but with the least possible portfolio volatility.”
The Stoxx Europe Low Risk Weighted 100 Index is derived from the Stoxx Europe 600 Index, and includes only those stocks from the base index which have the lowest historical 12 month volatility. Only components which have been listed at an eligible exchange for at least 12 months are eligible for inclusion in the index, i.e. IPO companies need to trade for at least 12 months before being eligible for selection.
The index is weighted reversely by components’ volatility: the lower a components 12 month volatility is, the higher is its weight in the index. The composition of the new index is reviewed quarterly in February, May, August and November after the review of the underlying index. The maximum component weight is capped at 10 per cent to prevent the index from being dominated by single companies.
The Stoxx Europe Low Risk Weighted 100 Index is calculated in price, net and gross return versions and available in Euro and USD. Daily historical data is available back to 16 March 2001.
Further versions covering the Euro zone, as well as different numbers of component for the regions, are also available, all of which follow the same methodology as the Stoxx Europe Low Risk Weighted 100 Index.
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