The New York Stock Exchange, a subsidiary of Intercontinental Exchange has launched the NYSE US Pure Exposure Index Family, a new series of nine sector indices that aims to isolate pure sector returns by hedging market risk.
The NYSE US Pure Exposure index strategies are based on Verus Analytics’ quantitative testing and validation engine for index composition and on AlphaBetaWorks’ proprietary statistical equity risk model, which estimates market beta for each index member individually and then aggregates these into the index market beta. The pure exposure sector indices hedge out market exposure via short positions in the SPDR S&P 500 ETF Trust (SPY) ETF. Real-time levels for the indices are published to the NYSE Global Index Feed (GIF).
“The NYSE is pleased to announce this innovative new index family, which was developed in collaboration with Verus Analytics and AlphaBetaWorks,” says Steve Crutchfield, NYSE Head of ETPs, Options and Bonds. “This unique bottom-up approach to hedging market risk employs a robust regression-based methodology for beta calculation and responds dynamically to changes in the index composition, in contrast to more traditional top-down approaches. The resulting pure exposure indices offer investors a novel approach to sector investing.”
The pure sector indices offer investors the ability to act on persistent trends in pure sector performance, whether positive or negative. In addition, while the returns of conventional sector indices are highly correlated, the returns of pure sector indices are largely uncorrelated, creating new hedging and portfolio allocation tools.
“We believe these indices will be the foundation for new and innovative ways to gain and adjust sector exposures within equity portfolios,” says Tom Barrett, Chief Investment Strategist at Verus Analytics. “There are multiple compelling applications including sector rotation, tactical strategies, risk management, and performance attribution, which will appeal to all types of equity investors.”
“We are pleased to provide this pioneering solution to index users’ needs. By eliminating problematic collinearity among factors, capturing true inter-sector relationships, and revealing persistent trends in pure sector performance, these indices offer an edge in hedging, statistical analysis and systematic strategies,” says Grigori Kapoustin, Principal at AlphaBetaWorks.