STOXX Indices Improved datasets are helping design new investment themes

STOXX is the main provider of thematic indices to the global retail structured products market and is also the supplier of one of the most popular thematic/sector underlyings used in the market - the EURO STOXX Banks index, which has an outstanding volume of US$7.9 billion across 16,735 products.

The index provider is also a top three provider of decrement underlyings: during 2019-2022, its decrement underlyings were deployed across 19 different markets with sales exceeding US$12 billion.

In the last two years, STOXX’s thematic indices have been featured across 203 products worth an estimated US$3.3 billion, which represent a 36% market share in this category. Four of its thematic underlyings dominate the top five ranking: iSTOXX® Europe Demography 50 index, STOXX® Global Technology Select 30 index, EURO iSTOXX® 50 Future Healthcare Tilted NR decrement 5% EUR index and EURO iSTOXX® 50 Artificial Intelligence Tilted NR decrement 5% index.

When it comes to strategies, both the innovation and the trends seen in other segments of the market in the last couple of years have emerged as well in the structured products market, according to Armelle Loeb, STOXX’s head of index sales for emea and member of the company’s management board.

“Investors want to target the same themes and strategies that are capturing the imagination elsewhere, but to do so with the benefits of a structured note,” says Loeb. “That includes growth-oriented technological themes, as well as sustainability objectives. Both areas keep delivering exceptional innovation in terms of ideas and methodologies. Besides that, decrements also continue to see significant uptake as do volatility target indices.”

We sat down with Loeb to ask her about the most recent market developments.

What thematics are resonating with investors at the moment?

One example of those trends is the EURO iSTOXX 50 Future Healthcare Tilted NR Decrement 5% index, which combines a strong technology-related theme with a decrement. In fact, the index was the most popular underlying for structured products in 2022 in terms of assets under management. The index tracks the benchmark EURO STOXX 50® plus the 10 largest securities from the STOXX® Global Breakthrough Healthcare index, while assuming a constant, annual 5% performance deduction.

Two other thematic indices with strong inflows last year were the EURO iSTOXX 50 Artificial Intelligence Tilted NR Decrement 5% and the EURO iSTOXX® 50 Sharing Economy Tilted NR Decrement 5%.

This year, if anything, has seen even stronger interest in these themes, particularly as the market has embraced the economic potential of AI. I expect new technological themes, such as the Metaverse and future mobility, to gain traction.

What role do ESG considerations play as investors embrace these new thematic strategies?

ESG is at the very center of every conversation with clients. The Sustainable Finance Disclosure Regulation (SFDR) has been a major driving force, and I don’t expect any slowdown there. Quite the opposite, actually.

In the post-pandemic world, all clients want an ESG, climate or – most lately – biodiversity angle for their strategies. Either as a pure play or main objective, or in the form of exclusions attached to a strategy, for example a thematic one.

Biodiversity is emerging like a new paradigm, with new metrics being developed that can help investors measure their impact on ecosystems. We recently launched the ISS STOXX® Biodiversity indices, which exclude companies involved in activities causing harm to biodiversity, select securities that have a positive impact on ecosystems and those enabling exposure to relevant UN Sustainable Development Goals (SDGs), and, finally reduce the portfolio’s carbon emissions. These steps can be used as a core strategy, but we are also discussing with some clients the integration of some of those filters as biodiversity exclusions within a broader strategy.