Frankfurt-based index provider Solactive has launched a family of five European single factor equity indices that track firms with strong value, quality, low beta, price momentum, and earnings momentum characteristics. The smart beta indices have been exclusively licensed to Invesco PowerShares to underlie a suite of ETFs launched on Deutsche Börse earlier this week.
The series provides exposure to European equities with strong value, quality, low beta, price momentum, and earnings momentum characteristics.
Timo Pfeiffer, head of research at Solactive, commented: “Factor investing has gained significant traction over the past years and can deliver good diversification to investors’ portfolios. The Solactive Tradable European Factor Index Series allows investors to capture the different risk premia on the basis of diversified portfolios of European companies. It has been great to team up with Invesco PowerShares and leverage their expertise in ETFs to define and build these strategies.”
Each index in the series is composed of 50 European-listed companies chosen from a starting universe of 675 stocks (Solactive Europe Total Market 675 Index). Each index is composed of companies that display a high degree of exposure to the factor in question, subject to certain liquidity requirements and sector caps in order to avoid industry concentration.
The indices are calculated in price return and net total return formats and are published in euros. Each index’s composition is rebalanced monthly.
The Solactive Tradable European Value Factor Index selects stocks that score highly on three traditional measures of value: earnings-to-price ratio, book-to-price ratio, and dividend yield.
The Solactive Tradable European Quality Factor Index selects stocks that score highly on three traditional measures of quality: return-on-assets, debt-to-equity ratio, and the cash ratio.
The Solactive Tradable European Low Beta Factor Index selects stocks with the lowest sensitivity to movements in the broad European equity market, as measured by their beta to a broad market benchmark.
The Solactive Tradable European Price Momentum Factor Index selects stocks with the highest difference between their 12-month and 1-month price returns.
The Solactive Tradable European Earnings Momentum Factor Index selects stocks with the largest percentage change over the preceding three months in consensus analyst earnings estimates for the next two fiscal years.
Once selected, index constituents are ranked and weighted by their three-month average daily trading volume (ADVT). The 15 stocks with the highest three-month ADVT are assigned a weight of 2.5% each; the 15 stocks with the lowest three-month ADVT are assigned a weight of 1.5% each, and the remaining 20 stocks are assigned a weight of 2.0% each.
Commenting on the launch of the PowerShares ETFs tracking the above indices, Chris Mellor, equity product specialist at Invesco PowerShares EMEA, said: “Invesco PowerShares is a global leader in factor ETFs, a position we have reached by offering investors competitive, compelling and cost-effective products focused on the right indices. We believe that factor strategies such as value, quality and price momentum will continue to see strong demand from European investors as they look for the portfolio performance and diversification benefits they provide.”
Each of the new PowerShares ETFs is offered with a total expense ratio (TER) of 0.30%.