STOXX, Source Team up for Supersector Indexes

The indexes were developed in collaboration with Source, provider of exchange-traded products and founded earlier this year by Bank of America Merrill Lynch, Goldman Sachs, and Morgan Stanley.

According to a press release, key factors addressed in the construction of the new equity indexes are: concentration, diversification, liquidity, and availability to borrow stocks in the index. Source has licensed 18 of the 19 sectors as index benchmarks for exchange-traded funds (ETFs), which will be launched in the coming weeks.

STOXX said the indexes will be the first to take into account the ability to borrow a stock in the stock lending market, using data provided by Data Explorers, an independent provider of stock lending and short interest information.

“With the launch of the Dow Jones STOXX 600 Optimized Supersector Indexes we are taking an innovative approach to creating sector index products by focusing even more on improved liquidity and diversification,” said Ricardo Manrique, chief executive officer, STOXX Ltd., in the release. He said the greater degree of underlying liquidity is achieved by concepts such as applying a liquidity weighting factor to each component and incorporating a stock’s availability to be borrowed. In addition, a new component weighting cap scheme assures UCITS-III compliance, Manrique said.

The initial index universe for the Dow Jones STOXX 600 Optimized Supersector Indexes is the stocks in the Dow Jones STOXX 600 Index. Stocks from Iceland and Greece are removed, and the remaining stocks are ranked by two liquidity measures: average daily turnover value (ADTV) to market free float (%ADTV ratio) and availability to borrow. Up to 60 stocks with the lowest liquidity are removed from the index.

The remaining stocks are divided into the 19 Supersectors based on their industry classification benchmark (ICB): Automobiles & Parts, Banks, Basic Resources, Chemicals, Construction & Materials, Financial Services, Food & Beverage, Health Care, Industrial Goods & Services, Insurance, Media, Oil & Gas, Personal & Household Goods, Real Estate, Retail, Technology, Telecommunications, Travel & Leisure, and Utilities.