The article below has been published by Structured Retail Products (SRP) and will feature in the “SRP Index Report 2023: Strategy & Custom indices” issue.
“We are seeing more demand for customised strategies built around our benchmarks, dividend and thematic indices,” said Armelle Loeb, head of index sales for EMEA at STOXX. “Outside of our traditional STOXX products, we work with clients to develop specific, tailored solutions under the iSTOXX and idDAX brands, as well as white label indices for banks’ quantitative investment strategies (QIS).”
On the QIS side of things, the index provider has included some innovative products, where it can provide indices solely as calculation agent or also as administrator.
“Even when the methodology is developed by the bank, some end clients find comfort in having the entire calculation managed by an independent party,” said Loeb.
“For STOXX, white labelling is a large and growing business, and having a flexible client approach and an open architecture for third-party data are essential.”
Sign up to receive valuable insights, news, and invitations as soon as they are published.Subscribe >
Where is demand for customisation coming from?
Armelle: “There is a very wide range of white label indices, from equities to multi-asset. And here we have seen demand for factor-based approaches, as well as for volatility target and options-based indices. Many indices are derived from flagship STOXX benchmarks, where clients can rely on deep and liquid derivatives trading around them.
To be sure, dividends continue to take up the lion’s share of the strategy segment. We introduced our first Select Dividend index, the EURO STOXX® Select Dividend 30, in 2005. The index still ranks year after year as the most tracked strategy index by structured products in the world. The Select Dividend family remains extremely popular and indeed leads in the industry in terms of market share.”
Can you provide examples of recent strategy indices you have developed?
Armelle: “Issuers have been busy with new strategies, and we have worked closely with them. It is often the case that the structured products industry is not the first to pick a trend, but rather you often see it first in the ETF and asset-owner mandate segments. There has been demand for our newest suite of STOXX Factor indices from those two industries, so we expect this to enter the structured products segment. The STOXX Factor indices target proven sources of market risk and excess returns, while managing exposure, liquidity and risk characteristics to provide an efficient approach to factor investing.
There has also been very good reception to our new STOXX World indices, which allow investors to slice and dice the world’s equity markets in a modular way, with a consistent methodology and international standards, and implement any desired factor, sustainability or thematic strategy around them. A large UK asset manager last year licensed the iSTOXX® World Min Vol ESG index for a pension fund mandate. I expect to see structured products issued on this new index suite.”
What changes would you highlight regarding the current market environment and demand for strategy indices over the last two years? Have investors shifted their preferences?
Armelle: “While there has been an important shift in the macroeconomic and geopolitical backdrop in the past two years, demand for strategy indices has held up well. Income strategies in particular did very well in 2022 even in the face of rising interest rates and very high inflation.
Low volatility and high dividends remain key as pricing-efficient factors used in structured products, allowing issuers to offer better product terms for investors. We know factors can be cyclical, but the appetite for income and certain factor strategies really seems weather-proof.
In other segments, I would mention the strong increase in demand for megatrend and ESG investments in the last two years. That in itself is also driving new demand for indices that combine a core ESG or thematic focus, with an added income, low vol or risk control overlay.”
There has been a significant influx of decrement indices and there is talk of a return of risk control. Is this an area of interest?
Armelle: “Yes. Almost all client requests we get for structured products include a decrement. Risk control is a frequent topic too. STOXX introduced the market’s first decrement index in 2014, and we have offered risk-control strategies for over a decade, supporting investors who want to manage risk and try to avoid the worst of market swings. Decrements have proved to be a total success, after initial resistance from some issuers and regulators.
As product issuance grows within more sophisticated and complex strategies, it underpins continuous demand for decrements, and increasingly for risk control too. This year we introduced an exclusive suite of clean energy thematic indices for Citi that included both decrement and risk control versions to suit the end investor’s needs. Issuers are aware of what investors want, and the need to control for volatility and provide protection continues to be front and center.”
Qontigo is a leading global provider of innovative index, analytics and risk solutions that optimize investment impact. As the shift toward sustainable investing accelerates, Qontigo enables its clients—financial-products issuers, asset owners and asset managers—to deliver sophisticated and targeted solutions at scale to meet the increasingly demanding and unique sustainability goals of investors worldwide.
Qontigo’s solutions are enhanced by both our collaborative, customer-centric culture, which allows us to create tailored solutions for our clients, and our open architecture and modern technology that efficiently integrate with our clients’ processes.
Part of the Deutsche Börse Group, Qontigo was created in 2019 through the combination of Axioma, DAX and STOXX. Headquartered in Eschborn, Germany, Qontigo’s global presence includes offices in New York, London, Zug and Hong Kong.