European index provider STOXX has rolled out the iSTOXX MUTB Global Quality Indices, a suite of smart beta benchmarks capturing the performance of companies that meet minimum standards related to profitability, leverage and cash flow.
Firms are selected with high quality characteristics enabling the index to try and beat similar broad market returns by avoiding riskier companies within its constitution. The indices, created in partnership with Mitsubishi UFJ Trust and Banking Corp, have been licensed to the Tokyo-based financial institution for product development. STOXX indices are designed to form the basis for investable products such as exchange-traded funds.
Hartmut Graf, Chief Executive Officer, at STOXX.
“We are delighted to extend our collaboration with Mitsubishi UFJ Trust and Banking Corp. by developing the iSTOXX MUTB Global Quality Indices. By that we follow the memorandum of understanding we entered last year, with the aim to create and market new smart-beta indices for the Japanese region,” said Hartmut Graf, Chief Executive Officer, at STOXX. “The newly launched indices offer local and international market participants an innovative and rules-based tool to participate in the performance of quality companies that are derived from the universe of the renowned benchmark STOXX Global 1800.”
Sunao Yokokawa, Managing Executive Officer of Mitsubishi UFJ Trust and Banking Corp. added: “The iSTOXX MUTB Global Quality Indices are the global version of the iSTOXX MUTB Japan Quality 150 Index, launched last August as the first index developed in collaboration with STOXX Limited. I believe that these indices will help us further expand our global asset management business. Going forward, we strive to actively develop various smart-beta strategies with STOXX, leveraging our expertise in both active and index investment management.”
The methodology of these indices initially segregates all potential stocks into US, European, or Asia-Pacific listings where each stock is then evaluated relative to the others within its region. All stocks are screened on four quality factors and each firm is then evaluated according to its return on equity, calculated as net income divided by shareholder’s equity.
Each stock is assigned a percentile position in each of the four factors and any firm scoring below the 50th percentile in the return on equity category is automatically dismissed. Firms are then assigned a composite score based on a 40% allocation to their return on equity score and a 20% allocation to each of their other factors. The top 150 firms across all three regions with the highest composite scores are selected for inclusion. Each constituent is weighted according to its free-float market capitalisation with a cap of 2% per firm.
The iSTOXX MUTB Global Quality Index suite consists of the:
iSTOXX MUTB Global Quality 150
iSTOXX MUTB Global ex Japan Quality 150
iSTOXX MUTB Global ex Australia Quality 150
The indices are available in euro- and dollar-denomination, while the iSTOXX MUTB Global Quality 150 is also calculated in Australian dollars and Japanese yen.