by Qontigo
Stocks rose for a fifth straight month during June, as ongoing optimism that the global economy is rebounding outweighed concerns about faster inflation and higher interest rates.
The STOXX® Global 1800 Index gained 1.5% in the month when measured in dollars and including dividends,1 taking its gain so far this year to 12.7%. It jumped 4.6% in euros as the greenback strengthened 3% against the common currency. Excluding dividends, the index extended its all-time high.
The pan-European STOXX® Europe 600 Index increased 1.5% in euros in the month and also marked a new record high when excluding dividends.2 The Eurozone’s EURO STOXX 50® Index climbed 0.7% and remained at its highest level since January 2008 on a price basis. The STOXX® North America 600 Index rose 2.8% in dollars. The STOXX® Asia/Pacific 600 Index, however, decreased 0.7%.
Figure 1 – Benchmark indices’ June risk and return characteristics
The STOXX Global 1800 rose 16.9% last year, its second straight year of double-digit percentage gains, as investors raised expectations that policy support and vaccines will help economies overcome the pandemic-induced slump.
Figure 2 – Returns since Jan. 1, 2020
| For a complete review of all indices’ performance last month, visit our June index newsletter. |
Volatility continues march lower
The EURO STOXX 50® Volatility (VSTOXX®) Index, which tracks EURO STOXX 50 options prices, continued its march lower, falling to 18.2 at the end of last month from 19.1 in May. A higher reading suggests investors are paying up for puts that offer insurance against stock price drops. The VSTOXX climbed to 86 in March 2020 as many countries imposed then restrictions on work and everyday activities.
Developed and emerging markets
All but three of 25 developed markets tracked by STOXX declined during June when measured in dollars, a reflection of the currency’s strong performance. In euros, 19 markets increased. The STOXX® Developed Markets 2400 Index climbed 1.4% in dollars and 4.5% in euro terms.
Twelve of the 21 national developing markets also posted a loss for the month when measured in dollars. The STOXX® Emerging Markets 1500 Index, however, rose 0.3% in dollars and 3.4% in euros.
Technology on top
Eleven of 20 Supersectors in the STOXX Global 1800 declined in the month. The STOXX® Global 1800 Basic Resources Index (-6%)3 led losses. The STOXX® Global 1800 Technology Index jumped 7.2% to top all other sectors.
Momentum factor back in favor
Momentum regained its lead among factor strategies covering global markets, paced by a strong performance from the factor in the US. The STOXX® Global 1800 Ax Momentum Index jumped 3.1% in June after coming in last in May.
On the other hand, the STOXX® Global 1800 Ax Value Index retreated 1.3% in June. The index is still ahead of all other styles this year among the STOXX Factor Indices covering global markets.
Figure 3 – STOXX Factor (Global) indices’ June risk and return characteristics
On a regional basis, gains were led by the STOXX® Europe 600 Ax Low Risk Index (+3.5%), STOXX® USA 900 Ax Momentum Index (+3.9%) and STOXX® Asia/Pacific 600 Ax Quality Index (+1.4%).
The STOXX® Global 1800 ESG-X Ax Momentum Index led returns in June among the Global ESG-X Factor Indices after adding 3.1%. The indices apply the same factor approach as the Global Factor Indices but additionally exclude companies involved in controversial activities from a sustainability point of view.
New sustainability indices
June saw the third month of trading for STOXX’s new sustainability index families.
These include the STOXX ESG Broad Market Indices, which apply a set of compliance, product involvement and ESG performance exclusionary screens on a starting benchmark universe until only the 80% top ESG-rated constituents remain. Companies that are non-compliant based on the Sustainalytics Global Standards Screening assessment or are involved in controversial weapons are not eligible for selection. Additional filters exclude companies involved in tobacco production, thermal coal and military contracting.
The STOXX® Global 1800 ESG Broad Market Index (+1.5%) and the EURO STOXX® ESG Broad Market Index (+1%) performed in line with their benchmarks during June.
Next, the STOXX and DAX ESG Target Indices seek to significantly improve the benchmark portfolio’s ESG profile, while mirroring its returns as closely as possible. The indices follow a similar initial selection methodology as the STOXX ESG Broad Market Indices. From that selection pool they implement, through a series of constraints, an optimization process to maximize the overall ESG score of the portfolio while constraining the tracking error to the benchmark.
The STOXX® Global 1800 ESG Target Index added 1.7% in June and the EURO STOXX® ESG Target Index rose 1.1%. The DAX® ESG Target Index increased 1.2%.
The STOXX ESG TE Indices, meanwhile, follow a similar methodology to the ESG Target Indices, but the optimization imposes a tracking error minimization, subject to a constraint of improving the ESG score of the resulting portfolio. The EURO STOXX® ESG Target TE Index added 1.2% last month.
Finally, the STOXX SRI indices apply a rigorous set of carbon emission intensity, compliance and involvement screens, and track the best ESG performers in each industry group within a selection of STOXX benchmarks. In the month that ended, the SRI indices produced returns that topped those of benchmarks. The EURO STOXX® SRI Index (+1.7%), for example, returned 67 basis points more than the EURO STOXX® Index.
ESG-X and ESG integration indices
The new ESG indices add to an existing universe of solutions that has given investors options to pursue ESG exclusion and integration strategies. Among them, the STOXX® ESG-X indices are versions of traditional, market-capitalization-weighted benchmarks that observe standard responsible exclusions of leading asset owners. The STOXX® Global 1800 ESG-X Index rose 1.7% in June.
Within indices that combine exclusions and ESG integration, the EURO STOXX 50® ESG Index (+1.1%) beat its benchmark by 44 basis points in June. The DAX® 50 ESG Index, which excludes companies involved in controversial activities from a sustainability point of view and integrates ESG scoring into stock selection, rose 1.3% and outperformed the benchmark DAX.
Climate benchmarks
There were strong performances from the STOXX Paris-Aligned Benchmark Indices (PABs) and the STOXX Climate Transition Benchmark Indices (CTBs) covering the global and US markets. The STOXX® Global 1800 PAB Index advanced 2.4% and the STOXX® Global 1800 CTB Index gained 2.1%. The indices were introduced last year and follow the requirements outlined by the European Commission’s Technical Expert Group (TEG) on climate benchmarks.
Among the STOXX Low Carbon Indices, the EURO STOXX 50® Low Carbon Index (+0.6%) slightly underperformed its benchmark last month.
Thematic investing shows strong returns
The STOXX® Thematic Indices had a strong month in June. The indices seek exposure to the economic upside of disruptive global megatrends and follow two approaches: revenue-based and artificial-intelligence-driven. Seventeen of 22 revenue-based thematic indices outperformed the STOXX Global 1800 Index during the month. The STOXX® Global Artificial Intelligence Index came out at the top of the ranking after gaining 9.2%, cementing its top slot for 2021. The STOXX® Global Broad Infrastructure Index came out last, losing 1.4%.
Among the three STOXX artificial-intelligence-driven thematic indices, the STOXX® AI Global Artificial Intelligence Index (+2.5%) and its ADTV5 version (+2.6%) beat the STOXX Global 1800 Index last month. The iSTOXX® Yewno Developed Markets Blockchain Index (+0.3%) underperformed the benchmark for the first month in five.
Dividend strategies
Dividend strategies tracked by STOXX had poor returns last month amid expectations that interest rates may rise earlier than expected.
The STOXX® Global Maximum Dividend 40 Index (-3.6%) selects only the highest-dividend-yielding stocks. The STOXX® Global Select Dividend 100 Index (-3%), meanwhile, tracks companies with sizeable dividends but also applies a quality filter such as a history of stable payments. The STOXX® Global ESG-X Select Dividend 100 Index (-3.3%) was introduced last February and targets the highest-yielding stocks within universes screened for responsible investment criteria.
The STOXX® Global Select 100 EUR Index, which blends increasing dividend yields with low volatility and is calculated in euros, advanced 1.7%.
Minimum variance
Minimum variance strategies had strong relative returns in Europe last month but underperformed when considering US and global portfolios. The STOXX® Europe 600 Minimum Variance Index added 2.7% in euros, while its unconstrained version increased 2.8%. The STOXX® USA 900 Minimum Variance Index climbed 2% and the STOXX® USA 900 Minimum Variance Unconstrained Index rose 1.1%.
The STOXX Minimum Variance Indices come in two versions. A constrained version has similar exposure to its market-capitalization-weighted benchmark but with lower risk. The unconstrained version, on the other hand, has more freedom to fulfill its minimum variance mandate within the same universe of stocks.
1 All results are total returns before taxes unless specified.
2 Throughout the article, all European indices are quoted in euros, while global, North America, US, Japan and Asia/Pacific indices are in dollars.
3 Figures in parentheses denote June’s gross returns.
