Skip to main content

You are here

Blog Listing Page

Index IDEA: A multi-factor look at European stocks with Kevin O’Leary

Comparing historical back tested performance and current sector composition of a new multi-factor combination index from FTSE Russell relative to its parent index offers valuable insight for European equity investors.

The FTSE Developed Europe Qual / Vol / Yield 5% Capped Index was introduced in 2015 as a tool for investors to measure the performance of high quality large and mid cap stocks of developed European markets exhibiting relatively low volatility and high dividend yields. Index constituents are selected from the FTSE Developed Europe Index and weighted based on quality, volatility and yield characteristics, with individual index constituents capped at 5% quarterly to avoid over concentration.
 

Kevin O’Leary, Chairman of O’Shares, “Shark Tank” cast member and CNBC contributor:
“Comparing performance of the FTSE Developed Europe Qual/Vol/Yield Factor 5% Capped Index to the performance of the FTSE Developed Europe Index helps provide insight into the effects of selecting high quality, low volatility European stocks that pay consistent dividends. Multi-factor indexes like this which include stocks with specific characteristics are an important and innovative new tool for examining markets and creating investable products.” 


The FTSE Developed Europe Qual / Vol / Yield 5% Capped Index has recorded returns of more than 9% annually from September 30, 2003 through June 30, 2016 (on an historical back tested basis) as compared to a 6.75% annualized return for the FTSE Developed Europe Index for the same time period, with a lower annualized volatility.

Source: FTSE Russell. Data covers September 30, 2003 to June 30, 2016. Past performance is no guarantee of future results. Returns may reflect hypothetical historical performance. Please see the disclaimer for important legal disclosures.

The current sector composition of the FTSE Developed Europe Qual / Vol / Yield 5% Capped Index relative to the FTSE Developed Europe Index demonstrates its weighting toward higher quality, lower volatility, higher yielding European stocks.

As of June 30th, the highest performing sector year-to-date within the FTSE Developed Europe Index was Oil & Gas (+18.51%), with Financials the lowest performing sector (-20.95%). As shown in the charts below the FTSE Developed Europe Qual / Vol / Yield Factor 5% Capped Index was 5.75% overweight Oil & Gas and 8.47% underweight Financials relative to the FTSE Developed Europe Index as of June 30.

Brad Zucker, senior product manager, FTSE Russell:
“Our clients are using smart beta indexes to pursue a wide range of objectives, notably return enhancement, risk management and diversification. And our analysis continues to show that combining multiple factors, not just a single factor, in a smart beta index can help market participants see diversification at a more granular level to view the global markets in a new and unique way.”


For a deeper dive into multi-factor smart beta indexes from FTSE Russell, go to the FTSE Russell website.

--------------------------------------------------------

© 2016 London Stock Exchange Group plc and its applicable group undertakings (the “LSE Group”). The LSE Group includes (1) FTSE International Limited (“FTSE”), (2) Frank Russell Company (“Russell”), (3) FTSE TMX Global Debt Capital Markets Inc. and FTSE TMX Global Debt Capital Markets Limited (together, “FTSE TMX”) and (4) MTSNext Limited (“MTSNext”). All rights reserved.

FTSE Russell® is a trading name of FTSE, Russell, FTSE TMX and MTS Next Limited. “FTSE®”, “Russell®”, “FTSE Russell®” “MTS®”, “FTSE TMX®”, “FTSE4Good®” and “ICB®” and all other trademarks and service marks used herein (whether registered or unregistered) are trade marks and/or service marks owned or licensed by the applicable member of the LSE Group or their respective licensors and are owned, or used under licence, by FTSE, Russell, MTSNext, or FTSE TMX.

All information is provided for information purposes only. Every effort is made to ensure that all information given in this publication is accurate, but no responsibility or liability can be accepted by any member of the LSE Group nor their respective directors, officers, employees, partners or licensors for any errors or for any loss from use of this publication or any of the information or data contained herein.

Views expressed by Brad Zucker and Kevin O’Leary are as of July X and subject to change. These views do not necessarily reflect the opinion of FTSE Russell or the LSE Group.

No member of the LSE Group nor their respective directors, officers, employees, partners or licensors make any claim, prediction, warranty or representation whatsoever, expressly or impliedly, either as to the results to be obtained from the use of the Russell Microcap® Index or the fitness or suitability of the indexes for any particular purpose to which they might be put.

No member of the LSE Group nor their respective directors, officers, employees, partners or licensors provide investment advice and nothing in this IDEA should be taken as constituting financial or investment advice. No member of the LSE Group nor their respective directors, officers, employees, partners or licensors make any representation regarding the advisability of investing in any asset. A decision to invest in any such asset should not be made in reliance on any information herein. Indexes cannot be invested in directly. Inclusion of an asset in an index is not a recommendation to buy, sell or hold that asset. The general information contained in this publication should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional.

No part of this information may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior written permission of the applicable member of the LSE Group. Use and distribution of the LSE Group index data and the use of their data to create financial products require a licence from FTSE, Russell, FTSE TMX, MTSNext and/or their respective licensors.

Past performance is no guarantee of future results. Charts and graphs are provided for illustrative purposes only. Index returns shown may not represent the results of the actual trading of investable assets. Certain returns shown may reflect back-tested performance. All performance presented prior to the index inception date is back-tested performance. Back-tested performance is not actual performance, but is hypothetical. The back-test calculations are based on the same methodology that was in effect when the index was officially launched. However, back- tested data may reflect the application of the index methodology with the benefit of hindsight, and the historic calculations of an index may change from month to month based on revisions to the underlying economic data used in the calculation of the index.

Blog Listing Page