S&P Dow Jones Indices (S&P DJI) has launched the Dow Jones Sustainability Europe Diversified High Beta High Dividend Index which is designed to measure the performance of high yielding stocks with high historical betas constructed from an eligible universe of companies which operate responsibly with regards to environmental, social and governance (ESG) issues.
The new sustainability index from S&P DJI targets European companies with high betas and high dividend yields.
“We are excited to launch a smart beta ESG index that will allow investors to measure performance of sustainable firms that also have desirable dividend income and tradability characteristics,” said Tianyin Cheng, Associate Director, Strategy Indices, S&P Dow Jones Indices. “The Dow Jones Sustainability Europe Diversified High Beta High Dividend Index adds to our growing offering in the ESG smart beta space.”
The index has been designed for tradability, making it an ideal basis for exchange-traded funds and structured products, and has been licensed to UBS for product development.
“Investor interest in sustainability has grown considerably in recent years, driven by the aspiration to make a positive impact and the belief that sustainability has become a factor of performance and risk mitigation,” stated Xavier de La Porte du Theil, Head of Investment Strategies Structuring, UBS. “The characteristics of the Dow Jones Sustainability Europe Diversified High Beta High Dividend Index make it an attractive underlying for both income and growth-seeking structured products.”
The index contains 50 high yielding high beta companies drawn from the Dow Jones Sustainability Europe Diversified Index. A stock’s beta represents its sensitivity to market movements with a figure greater than one indicating ‘high beta’. Such stocks can be expected to outperform when markets rise and underperform when they fall.
The eligible universe for the index is maintained in collaboration with RobecoSAM, a sustainable investment specialist. Constituents are selected based on their sustainability scores which are calculated based on RobecoSAM’s established research methodology that accounts for general as well as industry-specific sustainability trends and evaluates corporations based on a variety of criteria including climate change strategies, energy consumption, human resources development, knowledge management, stakeholder relations and corporate governance.
The selection of the final index constituents is achieved by ranking all stocks within the eligible universe by their historical beta, in descending order, with the top 100 stocks (i.e. stocks with the highest beta) selected. Following this, the stocks are ranked in descending order by their dividend yield, calculated as their trailing 12-month dividends per share divided by the stock price as of the rebalancing reference date. The 50 stocks with the highest dividend yield are selected for the index and equally weighted with adjustments made to ensure country and sector weightings are kept within tolerance.