Terms such as 'fast', 'precise' and 'super-responsive' are exactly the way most index providers would want to hear themselves described by their clients. They are the words chosen by a London-based structurer at a large bank that engaged Zurich-based Stoxx this year to work on the creation of a sustainability index.
"It has been a very fruitful relationship," says the structurer, explaining that the design of the sustainability index was complete and everything agreed internally within three months. Many such indexes will be sold into the retail market in Europe in a capital-protected format, he adds, which means the issuer will need to buy a call option on the index to provide the protection. So it helps that the index offers low volatility and thus inexpensive option pricing, which boosts yields.
"Stoxx has really spotted a trend and is making a smart move," the structurer notes.
Stoxx picks up the index provider of the year award for the second successive year, having recognised the challenges facing structured products issuers as low interest rates continue to make it difficult to generate yield. With a focus on speed to market, responsiveness and cost effectiveness, as well as the addition of several new indexes, the company has retained the loyalty of existing clients and added many more over the past year.
The number of structured products based on Stoxx indexes leapt by 72% year-on-year to 65,360 at the end of August 2015. That compares to a 24% rise the year before, highlighting a clear acceleration in the popularity of Stoxx products.
We can get back to the client with an initial set of numbers for a specific strategy or idea in days rather than weeks
Recognising the difficulty of keeping up with requests for new indexes for structured products, Stoxx began building an optimised framework last year that is now up and running and incorporates multiple mechanisms for reducing volatility, and therefore option pricing, which is particularly important in a low-yield environment.
The company can also now construct indexes more quickly than it could in the past, says Konrad Sippel, global head of business development at Stoxx in Frankfurt. "We can get back to the client with an initial set of numbers for a specific strategy or idea in days rather than weeks, and we can probably have the index on tickers in two months rather than four. We're talking roughly a 50% reduction in time to market," he says.
Stoxx has clearly benefited from its position as a major provider of European benchmarks such as the Euro Stoxx 50 and 600. Exchange-traded funds (ETFs) on these indexes have seen, respectively, a 31% and 74% net increase in assets year-on-year to the end of August 2015, accompanied by a significant rise in the number of structured products linked to them. Over the same period, the Euro Stoxx 50 rose by 3% and the Euro Stoxx 600 gained 6%.
Several new products have also marked Stoxx out from the competition. One example is the iStoxx Europe ESG Select 30 Index, launched in November 2014 and licensed to JP Morgan for a structured product. The index screens European companies from the Stoxx Global ESG Leaders Index for those that pay high dividends, while offering low volatility, thereby neatly combining three popular themes of the past year: environmental, social and governance factors; low volatility; and high dividends.
One London-based structurer at a large bank is full of praise for Stoxx's smart beta capabilities. "We were looking for a partner to help us develop a low-volatility index this year and Stoxx was probably the most rigorous and competitive in price," he says. "We've used other index providers, and some are much more expensive but far less professional."
Stoxx released a first-of-its-kind index family this year that picks components based on their Sharpe ratios. It includes stocks from the respective benchmarks that have the highest Sharpe ratios, excluding those with low dividend yields and low liquidity. JP Morgan licensed the Stoxx Europe Sharpe Ratio 50 Index for a structured product.
An ability to exploit gaps in the market was also reflected in Stoxx's International Exposure and True Exposure ranges, launched in May and June, respectively. Both index families allow more focused regional asset allocation, which piqued the interest of clients.
The International Exposure series provides exposure to companies that generate a substantial portion of their revenue outside of their home region. Two products from the range were licensed to UK-based ETF provider Source. The True Exposure offering enables investments in specific countries or regions by selecting companies with a dominant economic exposure to the targeted area.
In March, meanwhile, Stoxx introduced currency-hedged versions of its major indexes in response to client demand. The sterling- and dollar-hedged versions of the Euro Stoxx 50 have been licensed to Lyxor for use in its ETF products.
Stoxx has clear aspirations to become a major global index player, underlined by the opening of new offices in Australia and Japan this year. On recent evidence, you wouldn't bet against it.
The week on Risk.net, December 2–8, 2017Receive this by email