Stocks rose for a third straight month in April, with the STOXX® Global 1800 Index breaking an all-time high, as investors became more convinced that a post-pandemic economic recovery will take hold.
The STOXX Global 1800 Index gained 4.5% when measured in dollars and including dividends1, for its best monthly showing since November. The index added 2.1% in euros as the greenback weakened 2.4% against the common currency.
The pan-European STOXX® Europe 600 Index increased 2.3% in euros during the month and marked a record high when excluding dividends.2 The Eurozone’s EURO STOXX 50® Index climbed 1.9% and remained at its highest level since January 2008 on a price basis. The STOXX® North America 600 Index jumped 5.3% in dollars, as did the STOXX® USA 500 Index. The STOXX® Asia/Pacific 600 Index was the worst performer among major regional indices, rising only 0.4% in dollars.
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.
Exhibit 2 – Benchmark indices’ April risk and return characteristics
|For a complete review of all indices’ performance last month, visit our April index newsletter .|
Volatility ticks higher
The EURO STOXX 50® Volatility (VSTOXX®) Index, which tracks EURO STOXX 50 options prices, rose to 20.6 at the end of the month from 18 in March. A higher reading suggests investors are paying up for puts that offer insurance against stock price drops.
Gains for developed markets
All but one — Japan — of 25 developed markets tracked by STOXX advanced during April when measured in dollars. The STOXX® Japan Total Market Index fell 1.6%. The STOXX® Developed Markets 2400 Index climbed 4.5% in dollars and 2.1% in euro terms.
Thirteen of the 21 national developing markets tracked by STOXX also posted a gain for the month. The STOXX® Greece Total Market Index was the best performer, adding 9.4%. The STOXX® Colombia Total Market Index paced losses, declining 5.5%. The STOXX® Emerging Markets 1500 Index rose 2.6% in dollars and 0.2% in euros.
Energy bucks gaining trend
Momentum factor back in favor
This year’s trend in factor investing reverted in April, with Momentum regaining a lead while investors slowed down their relative purchases of Value stocks, according to the STOXX Factor Indices tracking global portfolios. The STOXX® Global 1800 Ax Momentum Index advanced 5.6% in April, the family’s best performance, but remains last in terms of 2021 returns.
The STOXX® Global 1800 Ax Value Index has so far this year returned more than any of the other five factor indices in its family. The STOXX® Global 1800 ESG-X Ax Momentum Index, which applies the same factor approach but also excludes companies involved in controversial activities from a sustainability point of view, rose 5.9% in April.
Exhibit 3 – STOXX Factor (Global) indices’ April risk and return characteristics
New sustainability indices
April saw the launch of four new sustainability index families, designed to meet the varied needs of investors.
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.
Next, the STOXX ESG Target Indices seek to significantly improve the benchmark portfolio’s ESG profile, while mirroring its returns as closely as possible.
The STOXX ESG Target 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 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.
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 were not, broadly speaking, very dissimilar to those of benchmarks. The EURO STOXX® SRI Index, however, returned 29 basis points more than the EURO STOXX Index. The STOXX® Global 1800 SRI Index increased 4.7%.
ESG-X and ESG integration indices
The new ESG indices add to an existing family of solutions that has given investors options to pursue ESG exclusion and integration strategies. Among them, the STOXX ESG-X indices performed broadly in line with their respective benchmarks during April. The indices are versions of traditional, market-capitalization-weighted benchmarks that observe standard responsible exclusions of leading asset owners.
Within indices that combine exclusions and ESG integration, the EURO STOXX 50® ESG Index beat its benchmark by 12 basis points in the month. The ESG index, which is derived from the iconic EURO STOXX 50 Index, beat its benchmark by more than 3 percentage points in 2020.
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%.
There were very strong performances from the STOXX Paris-Aligned Benchmark Indices (PABs) last month, in particular from those covering the European market. The STOXX Climate Transition Benchmark Indices (CTBs) also did better than benchmarks. The indices were introduced last year and follow the requirements outlined by the European Commission’s Technical Expert Group (TEG) on climate benchmarks.
Thematic investing lags behind
The STOXX® Thematic Indices seek exposure to the economic upside of disruptive global megatrends and follow two approaches: revenue-based and artificial-intelligence-driven. Only eight of 22 revenue-based thematic indices outperformed the STOXX Global 1800 Index during April.
At the top of the ranking came the STOXX® Global Fintech Index, with a 7.1% advance in dollars. At the bottom, the STOXX® Global Electric Vehicles & Driving Technology Index retreated 0.6%.
Among the three STOXX artificial-intelligence-driven thematic indices, the iSTOXX® Yewno Developed Markets Blockchain Index beat the benchmark STOXX Global 1800 for a third consecutive month.
Dividend strategies underperform
The dividend strategies tracked by STOXX underperformed benchmarks in April, following strong returns in the first quarter.
The STOXX® Global Select 100 EUR Index, which had in March its best month since 2009, dropped 1.7% in euros during April. The index blends increasing dividend yields with low volatility.
There was a mixed picture for minimum variance strategies. In Europe, the STOXX® Minimum Variance Indices gained relative pace in April after underperforming benchmarks in earlier months. The inverse was true of the indices covering the US market.
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.