Want To Invest In Firms With Dominant Country Exposure? There Are New Indices For That

Tom Burroughes

9 June 2015

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.