New York-headquartered index provider Indxx has unveiled a new thematic equity index providing exposure to companies benefitting from the increased adoption of telecommuting and remote workplaces.
The index seeks to capture the firms benefitting from the increased adoption of work-from-home practices.
The Indxx Flexible Workplace Index selects its constituents from a universe of developed and emerging market stocks.
Companies must have a minimum market capitalization of $500 million and an average daily trading volume above $2m for developed markets and $1m for emerging markets.
The methodology harnesses research from FactSet to identify firms that derive at least 50% of their revenue from industries related to remote working sub-themes.
These sub-themes include cloud services, digital communication, workplace virtualization, cybersecurity, data centre REITs, and new tech.
Companies that derive income greater than $500m from cloud services, regardless of the percentage of firm revenue that the income represents, will also be eligible for inclusion.
The largest ten stocks from each sub-theme are selected to form the final index. Constituents are weighted equally and the weight of the data centre REITs sub-theme is constrained to 10%.
Reconstitution and rebalancing occur on an annual basis with buffer rules helping to minimize unnecessary turnover.
The index is suitable to serve as the underlying reference for investment products including ETFs.
The strategy seeks to benefit from the increasing adoption of work-from-home practices, a trend that has accelerated during the Covid-19 lockdown and is expected to remain high as firms seek to keep overhead costs down.
According to a recent survey of companies conducted by PWC, half (49%) of respondents indicated they were planning to make remote work a permanent option for roles that allow it.
Major companies including Google, Microsoft, Morgan Stanley, JPMorgan, Capital One, Zillow, Slack, Amazon, PayPal, and Salesforce have all extended their work-from-home options.
Companies operating in the cloud computing, telecommuting, and cybersecurity sectors are expected to emerge as potential winners from this work-from-home revolution.
According to research from Indxx, more than $1.3 trillion in IT spending will be affected by the shift to cloud services by 2022, the global video conferencing market is expected to register a compound annual growth rate of 9.9% to 2027, and the cybersecurity market is expected to grow from $151bn in 2018 to $248bn by 2023.
Using back-tested analysis, the theme has certainly played out in the performance figures with the index recording an annual gain of 26.8% since its base date at the start of 2016. Additionally, the index is up 32.7% year-to-date (1 June) compared to a -4.5% loss for the S&P 500 and a -8.1% for the MSCI ACWI Index.
Source: Indxx.
Several other index providers have rolled out new indices that are linked to trends associated with Covid-19.
Solactive unveiled the Solactive Remote Work Index, tracking a portfolio of companies that specialize in providing products that focus on the ability to work from home. The index is due to underlie a new ETF from US sponsor Direxion.
Meanwhile, EQM Indexes introduced a thematic suite that includes indices aligned with ‘Work from Home’, ‘Stay at Home’, ‘Covid-19 Stocks’, and ‘Global Pandemic Disruption’ investment themes.