Opinion Leaders

STOXX indices aimed at structured products continue to go strong, with more issuers and investors putting their weight behind them.

13/11/2017, by Dr. Jan-Carl Plagge, Head of Applied Research, STOXX Ltd.

In September, STOXX was named ‘Best Index Provider, Nordics’ and ‘Best Smart Beta Index Provider, Nordics’ by Structured Retail Products (SRP), adding to similar mentions in recent months. We welcome the recognition from the structured products industry, which is testament to the innovation of our STOXX Select Diversification Solutions (SDS) indices.

Higher efficiency and superior performance
The STOXX Select and Diversification Select family was introduced as a result of the challenge that structured products issuers faced with record-low interest rates.

As rates sank below zero in the post-crisis world, the cost of bonds used in structured products became too expensive. Structurers had to either trim the insurance proposition in their products, or the investment participation ratio in returns. Or both. 

Against this backdrop, STOXX focused on where it could add value: enabling improved pricing of options used in structured products. SDS Indices track companies with high dividends and low volatility, characteristics that bring down the price of calls. In the case of the Diversification Select indices, the low correlation screen provides an additional lever in the pricing optimization.

A growing number of issues
Since being launched in 2015, the SDS indices have seen huge demand as underlying for structured products. They have grown from benchmarks such as the STOXX® Europe Select 50 and STOXX® Europe Diversification Select 50 to cover a wide range of themes including low carbon, sustainability and geographical revenue exposure.

Among the latter, we have licensed the STOXX® Europe ESG Leaders Select 30, STOXX® Europe Christian Select 30, STOXX® Global Infrastructure Select 30 and the iSTOXX® Global Women Leadership Select 30.

They are quickly approaching the level of success with structured products that we had with the Select Dividend indices, a first generation of optimized indices introduced in the 1990s that track high-dividend shares. The EURO STOXX® Select Dividend 30 has been selected as underlying index for 1,463 structured products across 21 jurisdictions, according to SRP data.

One additional benefit of the SDS is that securities with low volatility and high dividends have historically outperformed the broader market in long periods due to their more stable businesses and smaller potential drawdowns. This can translate into higher returns to the holders of structured notes on top of enhanced protection and participation. 

The SDS suite shares the same transparent methodology and rules that are staple of all STOXX products. This is of paramount importance to issuers, who must present a simple-to-understand and consistent offering to retail clients and regulators.

Innovation and speed rewarded
The versatility and quick-to-market nature of our innovative, tradable and global indices have also helped us lure industry acknowledgment in the form of awards.

STOXX won the 2017 European Structured Products & Derivatives award under the category ‘Best Index Provider’. We have been named ‘Most Innovative Index Provider’ by etfexpress for seven years in a row and ‘Most Innovative ETF Index Provider in Europe’ by exchangetradedfunds.com for eighth consecutive years. We were also named ‘Index Specialist of the Year 2017’ at the Wealth & Money Management Awards.

More possibilities ahead
The Select and Diversification Select indices are helping make a difference for asset managers, structurers and service providers. I look forward to continuing working with them as we unveil new possibilities in the structured products space.

To read a previous PULSE ONLINE article on the Structured Products Solutions, please visit this link.

 

10/11/2017
10/11/2017