STOXX Limited released a first-of-its-kind index family that selects components based on their Sharpe ratios. The STOXX Sharpe Ratio indices include stocks from the respective benchmarks that have the highest Sharpe ratios, while excluding those with low dividend yields and low liquidity. JP Morgan has licensed the STOXX Europe Sharpe Ratio 50 Index for a structured product.
“Sharpe ratio takes into account both risk and return, and this index family offers an effective and transparent tool to target those companies that offer some of the most attractive risk-adjusted returns,” said Hartmut Graf, chief executive officer, STOXX Limited. “The STOXX Sharpe Ratio index family is an important addition to our smart-beta offering, which includes several other indices, such as Minimum Variance, Strong Quality, Strong Balance Sheet, among others.”
Arnaud Jobert, managing director, head of Structuring at JP Morgan, said: “The STOXX Sharpe Ratio index family allows investors to gain access to a diversified basket of shares, which had historically the highest risk adjusted returns. The objective is to provide exposure to the stocks that have performed better historically, relative to the risk investors would have taken.”
The STOXX Europe Sharpe Ratio 50 Index is based on the STOXX Europe 600 Index. Companies in the benchmark that have an average six-month daily traded volume (ADTV) above a 1 million euros (the threshold is 5 million euros for the Global version) and are among the top 20% of dividend payers are eligible for inclusion in the index. Those 50 companies with the highest one-year Sharpe ratios are included in the index.
Each regional index – Europe, North America, Asia/Pacific – has 50 components. The Global version has 100. Index components are weighted according to the inverse of their one-year volatility. The indices are reviewed quarterly and components are subject to a 10% cap. The indices are calculated in price, net and gross return versions in euro and US dollars.
All indices use STOXX GC Pooling EUR 12 Months as the risk-free rate. The STOXX GC Pooling index family is based on the Eurex Repo GC Pooling Market and offers a transparent, rules-based, independent alternative to unsecured interbank benchmarks such as LIBOR and EURIBOR/EONIA.
Further information : stoxx.com