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Want To Invest In Firms With Dominant Country Exposure? There Are New Indices For That
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The world of bespoke market indices to suit every investor taste continues to throw up new ideas.
Investors seeking to back firms by choosing those which have a
dominant economic exposure to a particular country can do so more
easily through a new set of indices, specialist index provider
STOXX has announced.
The group has launched the STOXX True Exposure index family, or
STOXX TRU for short. The indices allow investments in predefined
countries or regions. The indices are yet another example of what
is called “smart beta” investing, a term broadly relating to how
indices can be composed to mirror the returns associated with a
particular strategy without the cost of active management.
“In today’s interconnected world, having a portfolio that invests
in a US, European and Asian market-cap benchmark leads to
unintended regional overlaps of economic exposures,
leaving investors with allegedly diversified portfolios that
could have highly correlated returns,” Hartmut Graf, chief
executive of STOXX, said.
“Our STOXX TRU indices help investors create an asset allocation
based on truly separated geographic buckets. These buckets are
significantly less correlated among each other compared with
standard equity indices, resulting in an improved risk profile.
The STOXX TRU indices are based on a sophisticated and innovative
model to identify a company’s economic exposure to a country or
region, when such a breakdown is not available explicitly,” Graf
continued.
The basic index universe for the STOXX TRU index family is the
respective STOXX country, broad or benchmark index. Companies
with a minimum required revenue exposure (25 per cent, 50 per
cent, 75 per cent, 100 per cent) to a targeted region or country
are selected. In addition, a minimum average daily trading volume
of more than €1 million is required to ensure investability.
Index components are weighted by a combination of free-float
market cap and revenue exposure to local market, subject to a 5
per cent cap. Indices are reviewed annually in September.
The STOXX True Exposure indices are calculated in price, net and
gross return versions and available in euros, dollars,
sterling, Australian dollars, yen and Canadian dollars.