Qontigo’s STOXX index business has its eyes on ETFs
The index business within the Qontigo offering is STOXX, well-known for its successful indices, including the EURO STOXX 50, designed to provide a blue-chip representation of supersector leaders in the Eurozone.
Axel Lomholt joined the firm six months ago as Chief Product Officer, Indices, with overall responsibility for the STOXX and DAX index portfolio, and has huge ambition for the firm, particularly in strengthening its position in the ETF space. Previously, he spent nearly nine years in senior leadership roles at Vanguard Investments.
New opportunities for index providers
“To really understand where we are going, you need to understand the history of the Qontigo index business,” Lomholt says. “Originally, a considerable portion of STOXX was dedicated to supporting banks creating structured products and we launched many successful indices which were tailormade for this adoption. In addition, our indices were and are being used as underlyings for derivatives and ETFs.” In the past, indices were designed for simplicity and liquidity, but what Lomholt observes is happening now, is that the ETF market is changing and creating new opportunities for index providers.
“Over the past couple of years, we have seen a growing demand for customized index solutions, also in the ETF market,” he says. “While STOXX indices have a healthy market lead in structured products, some of the themes that are playing out in the ETF market mean that it is the right time for us to focus even more attention on licensing indices to ETF providers.”
There are three key reasons why ETFs are doing so well, according to Lomholt. The first is that ETFs have disrupted legacy practices, driving a wedge into inaccessible markets as a powerful distribution tool. “Once an ETF is listed on the exchange, you have access to investors that have been held captive for so many years by, for example, third-party distributors and banks.”
“ETFs have also really democratised investing, with intra-day trading flexibility and making it easier for retail investors to access ‘hard to reach’ markets such as strategies targeted toward climate transition goals or emerging markets.”
Lomholt’s third point is that ETFs have made it easy to construct portfolios, a fact that lies at the heart of the STOXX index offering. “ETFs have made it so much simpler to control your costs and to blend specific strategies into active portfolios,” he says. “Increasingly, active investors are using thematic and factor strategies as proxies for active exposures. In fact, ETFs have enabled and advanced technology to the extent that you can see which factors should be targeted in active portfolios and use ETFs instead.”
The common thread running through all of this is that it is a way for portfolios to be more customised for the investor, and this is where Lomholt believes Qontigo can play a part by bringing together STOXX indices with portfolio construction and Axioma analytics tools to create highly targeted index methodologies.
It’s all about customisation
“The value thesis behind Qontigo is the unique combination of indexing and analytics, enabling us to offer solutions that are enhanced by advanced optimisation and portfolio construction. And our open architecture makes it easy to onboard external data, either from leading data providers or proprietary client data.”
In his first months of getting to know his new home, Lomholt says that three things set Qontigo apart from other index providers. “There is strong demand from our clients for our research and development expertise. It’s all about customisation. Clients want to spend time with us to solve difficult investment problems,” he says. “That is our secret sauce that we now want to scale up.”
Secondly, the firm has continued to strengthen its index business by hiring a number of leading technologists to further integrate elements of portfolio optimisation and analytics into index construction.
“And the third thing is good service. At the end of the day, indexing is a service business and I think there is a great opportunity for Qontigo to come in and deliver world-class service to investors.”
The rise of thematic ETFs
An emerging trend that Lomholt has observed in ETFs includes the rise of the thematic ETF. “The key driver is that we can deliver exposures now that you couldn’t in the past as it was difficult to get liquidity. Technology has advanced and liquidity is deeper across most asset classes, meaning that we can slice and dice a segment to a much larger degree than in the past.”
Key areas in which STOXX will be launching indices include the sustainable sector - looking at climate and ESG integration, and impact investing - and the thematics sector, ranging from digital assets, AI and transformative technology, to healthcare and biotech.
Qontigo sees sustainability from two angles: how companies are impacted by sustainability and how companies are driving sustainability within the impact revolution. As examples of its sustainability initiatives, the firm recently licensed two STOXX Sustainable Climate indices to FlexShares, and the DAX ESG Target Index was selected as underlying index for a new iShares ETF.
Lomholt, who joined Qontigo after years of experience in the asset management business, is enjoying the challenge of his new job, six months in, and being in a new role, even in a new country as he is now based in Zug, Switzerland which is the home of Qontigo’s indexing operations. “There is a lot to do but we have a great future and are very well positioned for some of the major drivers in this industry on the macro side,” he says.