Asia Index introduces factor indices for institutional entities

Asia Index, a joint venture between S&P Dow Jones Indices and the BSE exchange, has introduced four indices under the umbrella name of S&P BSE Factor Indices, to measure non-market factors such as value, volatility, momentum and quality of stocks. These are primarily aimed at institutional investors, both domestic and foreign.

The indices — S&P BSE Enhanced Value Index, the S&P BSE Low Volatility Index, the S&P BSE Momentum Index and the S&P BSE Quality Index — will consist of stocks from the S&P BSE LargeMidCap index, a size sub-index of the S&P BSE AllCap family.

“We aim to broaden the S&P BSE Index family, to cater to the demand of the investor base who continuously seek dynamic strategies that offer their own risk premia,” said Asia Index chief executive Alka Banerjee.

The maximum weight of stocks in all four factor indices is capped at five per cent. The maximum weight of BSE sectors for the S&P BSE Enhanced Value Index and the S&P BSE Quality Index is 30 per cent. Each index composition is to be reviewed semi-annually, every March and September. Each index value is calculated on an end-of-day basis, in both the rupee and the dollar. The first value date of the indices goes back to September 16, 2005.

“These indices are ideal for those looking at higher-than-market returns with a rule-based approach and a passive strategy,” said Koel Ghosh, the Asia Index's director, business development, South Asia.

The Enhanced Value Index is designed to measure the performance of companies with valuations based on ratios – book value to price, earnings to price and sales to price. The Low Volatility Index comprises companies with the least amount of volatility, while the Momentum Index measures the performance of companies that exhibit persistence in their relative performance. The S&P BSE Quality Index is to track high-quality stocks, based on return on equity, accrual ratio and financial leverage ratio.

Experts say there were 80 such smart beta products in Asia and 800 in the US, as of mid-2015.