Frankfurt-based index provider Solactive has unveiled a new global equity index that seeks to combine a defensive positioning with a focus on companies expected to benefit from long-term socio-economic trends.
Timo Pfeiffer, Chief Markets Officer at Solactive.
The Solactive Next Generation Defensives Index is available for licensing and suitable as an underlying reference for investment products including ETFs.
The index is based on the parent Solactive GBS Developed Markets Large & Mid Cap Index universe which consists of more than 1,600 stocks from 23 developed market countries.
The methodology draws its constituents from the three sectors with the lowest betas relative to the parent universe. Based on an analysis between May 2006 and January 2020, these three sectors are non-durable consumer goods (beta of 0.67), utilities (0.72), and healthcare (0.73).
From within these three sectors, the index aims to select growth firms that are best-positioned to benefit from three global trends: a growing population, demographic developments, and decreasing global income inequality.
To achieve this, Solactive adds an additional two screening stages. Firstly, firms must derive at least 10% of their revenue from each of the three major geographical regions: the Americas, Europe/Africa, and Asia-Pacific.
Additionally, to sharpen exposure to high-growth companies, the index includes only those firms with proven revenue expansion – sales reported in the current fiscal year must be higher than three years earlier. Constituents are weighted by float-adjusted market capitalization.
Using back-tested performance between May 2006 and January 2020, the index has outperformed its parent universe with an annualized return of 9.72% (vs. 6.55%) with lower annualized volatility of 13.24% (vs. 15.90%).
Timo Pfeiffer, Chief Markets Officer at Solactive, commented, “Our new Next Generation Defensives Index is specifically targeted at investors seeking substantial long-term growth and, at the same time, want to increase their exposure in defensive sectors.
“The strategy can add value to investors, especially in turbulent market environments. Our analysis shows that it has especially demonstrated its robustness during the five most recent stock market corrections.”