Source, one of the largest providers of Exchange Traded Products (ETPs) in Europe, has launched Source STOXX Eurozone Exporters UCITS ETF and the Source STOXX Japan Exporters UCITS ETF, which track the new STOXX International Exposure Indices.
Peter Thompson, President of Source, says: "We are delighted to have worked with STOXX to develop these innovative new indices that will enable investors to construct their portfolios more precisely by using revenue-based indexing. We identified a particular need from our investors to gain more targeted exposure to the topical themes of currency devaluation and quantitative easing; hence these indices focus precisely on those companies in the Eurozone and Japan that have a majority of non-domestic revenues. This could be especially valuable now with both the ECB and Bank of Japan using QE, offering the potential for weaker currencies that is likely to boost exporters’ earnings."
The indices’ analysis of underlying revenues can reveal important characteristics that are ignored by traditional market cap weighted indices. For instance, contrary to Japan’s reputation for being a strong exporting nation, only around 33% of the revenues of the largest 600 Japanese companies are derived from overseas earnings. If an investor believes that quantitative easing by the Bank of Japan will weaken the yen and, in turn, improve the profitability of Japanese exporters, they may wish to consider the new STOXX Japan International Exposure Index, which roughly doubles that foreign revenue exposure to 65%.
STOXX uses a transparent and straightforward construction process that is consistent across both the Eurozone and Japan indices: they are constructed from those companies in the respective parent indices with at least 50% of their revenues earned from abroad, and then weighted by the product of the free-float market capitalisation and the percentage of international revenue. Individual positions are capped at 5%.
Both ETFs are available in currency-hedged and unhedged versions. The Source STOXX Eurozone Exporters UCITS ETF is being launched on XETRA in EUR, with a USD-hedged version on the LSE, while the Source STOXX Japan Exporters UCITS ETF is being launched on the LSE, with a EUR-hedged version available on XETRA.
Source UK Services Limited is authorised and regulated by the Financial Conduct Authority in the UK.