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Hartmut Graf, chief executive officer, Stoxx

STOXX launches Strong Quality index family

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STOXX Limited has launched the STOXX Global Strong Quality 50, STOXX Europe Strong Quality 30, STOXX Asia/Pacific Strong Quality 30 and STOXX USA Strong Quality 50 indices, which represent strong quality companies in their respective regions.

 
The new indices are designed to act as an underlying for exchange-traded products and other investable products, and as a benchmark for actively managed funds that share the same investment philosophy.
 
“With the launch of the STOXX Strong Quality Index family, we offer market participants a tool to access the performance of highly profitable companies that sell at attractive valuations when compared to their peers,” says Hartmut Graf (pictured), chief executive officer, STOXX Limited. “Strong quality companies tend to share the following traits: these businesses are less prone to distress, they tend to have longer cash flow durations and enjoy lower levels of operating leverage. Through a set of powerful fundamental screening metrics, our new indices offer market participants access to these companies.”
 
The index universe for the STOXX Strong Quality Indices is the STOXX Global 1800 Index. Each of the new regional indices is derived from the respective regional base index, i.e. the STOXX Europe 600, STOXX Asia/Pacific 600 and STOXX North America 600 indices. For the STOXX USA Strong Quality 50 Index, all Canadian stocks in the base index are excluded from the index universe.
 
To be eligible for inclusion in the STOXX Strong Quality Indices, companies must have a minimum three month average daily trading volume (ADTV) of EUR10m for the global and US indices, and EUR5m for the remaining indices. Furthermore, a set of strict numerical thresholds must be passed in order to establish desired company profitability and liquidity levels, and to build an investment margin of safety. Firstly, a company’s return on capital (ROC) must be positive for each fiscal year during the last 36 months. Secondly, their operating liquidity – as measured by trailing 12 month current ratios – must be greater than one. Lastly, individual company EBITDA/EV readings are evaluated against the US AAA Bond Yield (where all companies with negative relative valuation yields are excluded). Companies are ranked from most to least attractive in each of the above three categories, and an average of the three is calculated. Companies with the best ranking are then selected for index inclusion until the respective number of components for the index is met.
 
The STOXX Strong Quality Indices are available in free float market capitalisation weighted and equal weighted versions. Components are subject to a 10 per cent weighting cap. The indices are reviewed annually and rebalanced on a quarterly basis. The STOXX Strong Quality Indices are calculated in price, net return and gross return versions, and are available in Euro and US dollar. Daily historical data is available back to 23 June 2003.

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