NYSE Euronext today announced the expansion of its range of indices with the launch of the CAC® Low Risk Index and the AEX® Low Risk Index. These low risk indices, developed in partnership with Finvex Group, are based on the successful European national blue chip indices and provide new risk adjusted investment possibilities for investors and Exchange Traded Product (ETP) providers.
With the introduction of the new low risk index series NYSE Euronext is responding to growing demand from institutional investors for better risk control mechanisms. Through the use of advanced risk analysis tools and an optimization process, a robust insight into risk is achieved. The careful selection and weighting of equities in the low risk indices¹ aims at lower overall risk than traditional market capitalization weighted indices. The compounding of more stable returns also allows to target a positive effect on returns.
“Given the current challenging economic and financial environment, we are very pleased to be able to offer investors, in partnership with Finvex, the opportunity to reduce their market risk and volatility, thanks to these new Low Risk Indices.”, said George Patterson, Head of NYSE Euronext’s European Indices Group. “Due to the advanced risk adjusted technology we are able to extend our successful CAC and AEX index series and provide their respective markets with an optimized market risk strategy reducing volatility and drawdowns in declining markets.”
Benedict Peeters, co-founder of Finvex Group, added: “Indices based on robust risk reduction technology are an attractive alternative or complement to traditional benchmarks that generally do not include any risk element. NYSE Euronext’s high quality platform is now including these advanced solutions and we are confident their client base will start tracking or using these indices in the near future.”
Background
1 The SBF 120® will serve as the basis for the selection for the CAC Low Risk Index. Stocks with liquidity below EUR 2.5 million are excluded via a liquidity analysis, constraint that can be relaxed to ensure inclusion of the 75% most liquid stocks at least. To determine the constituents that will be included in each index a stock selection method is applied on the selected pool, based on advanced academically backed risk forecasting methodologies, combined with powerful optimization techniques. The number of stocks selected in the CAC Low Risk Index will be between 25 and 50, but will most of the time consist of around 45-50 constituents.
The AEX-Index® and AMX-Index® combined will serve as the basis for selection for the AEX Low Risk Index. Similar to the CAC Low Risk Index, a liquidity analysis is applied with a liquidity threshold of EUR 2 million and comparable methodologies are used to create the index. The number of stocks selected in the AEX Low Risk Index will be between 20 and 30. The review of the composition and weighting optimization of both indices will be performed monthly.
2 Complementing traditional equity exposure with risk efficient equity exposure generally offers superior results in an asset allocation framework. This is also shown in historical data. Measured over a 10 year period, the CAC Low Risk Index outperforms the CAC 40® yearly with 6.38%. The AEX Low Risk Index outperforms the AEX-Index yearly with 4.28%.*
3 The two low risk indices being launched today will be known officially as CAC Low Risk Index and AEX Low Risk Index and will be calculated as a basket index, for both indices also a Net return and Gross return version will be launched. The Indices will have a base level of 1,000 on January 18, 2002 and will be calculated every 15 seconds. In table one you will find the official index names, isincodes and mnemo’s of all six indices.
Table 1: CAC and AEX Low Risk Indices
Name of Index |
Isincode |
Mnemonic |
Annualized Return* |
CAC Low Risk Index |
QS0011245329 |
CACLR |
3.85% |
CAC Low Risk Index NR |
QS0011245337 |
CALRN |
7.21% |
CAC Low Risk Index GR |
QS0011245345 |
CALRG |
7.76% |
AEX Low Risk Index |
QS0011245295 |
AEXLR |
0.54% |
AEX Low Risk Index NR |
QS0011245303 |
AELRN |
5.02% |
AEX Low Risk Index GR |
QS0011245311 |
AELRG |
5.69% |
*Period: 18 January 2002 to 9 October 2012