JP Morgan has licensed the Solactive Global Infrastructure High Income and the Global Infrastructure Income indices to develop a range of structured products, with the indices launched today.
The indices offer exposure to an investible basket of infrastructure companies from developed markets screened for high dividend yield and low volatility. The high income index is more based on dividend income, by only selecting stocks that are expected to pay a dividend in the next quarter. "Increased infrastructure spending is a global theme that presents investors with the opportunity to take a long-dated view with defensive positioning, and the Solactive Infrastructure Index Series adds to this by providing low volatility and high dividend selection," said Arnaud Jobert (pictured), co-head of investible indices at JP Morgan.
Over the last months, especially since the US election, there has been increased demand from investors around the infrastructure theme, according to Jobert. "Stocks in the infrastructure sector can strongly benefit from boosts in infrastructure spending, which governments in the US, Japan and Canada have committed to," said Jobert. "Most demand for infrastructure indices has come from private banks and retail distributors globally and clients can get access to the indices both in OTC-format and via structured products."
The construction of the indices allows packaging them into products that offer investors full capital protection with high levels of upside participation - even though interest rates in the eurozone remain close to all-time lows, according to Jobert.
The new index includes a volatility feature and a selection criteria that singles out stocks that will pay dividends in the upcoming quarter, according to Henning Kahre, head of research at Solactive. "We are working on different concepts so that we can offer indices that are relevant to different product types and investor profiles," said Kahre. "Low volatility and high dividend exposure are two elements that make the index appealing for structured products providers, but we can add other features that will make them more suitable for ETFs and other index-linked products."
Infrastructure has drawn wide attention following announcements by multiple developed countries' governments of increases in infrastructure spending. In the US, the government pledged to invest US$1tr to rebuild the country's infrastructure and fix roads, bridges and airports. Likewise, Japan committed to increase its infrastructure budget to $61bn. Similarly, the Canadian government has announced the launch of a 10-year infrastructure investment programme, which will include incremental funding for new infrastructure projects estimated at more than $60bn.
The infrastructure theme has been at the top of the indexing agenda since the beginning of the US election campaign, according to Kahre. "This has generated an interest around infrastructure and provided new opportunities to index providers, as we can design indices that will offer exposure to this segment and respond to investor demand," said Henning. "We are currently seeing a lot of demand for the infrastructure theme across client groups and for different types of investment products."
The two new indices provide exposure to companies likely to benefit from increased infrastructure spending in developed economies. The indices are calculated as price return and gross total return indices, are denominated in both euros and US dollars, and are composed of 30 infrastructure-related stocks subject to country and industry diversification filters weighted according to inverse volatility. The composition is readjusted quarterly.
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