Barclays has expanded its range of smart beta indices with the launch of the Shiller Barclays Cape Single Stock Index Family, a new addition to the series of equity sector indices designed jointly by Professor Robert Shiller and the UK bank.
The new index range also uses the cyclically adjusted price-to-earnings (cape) ratio to determine valuation, but rather than sectors applies this to single stocks of established companies across various regions.
The new indices aim to provide an alternative to market capitalization weighted indices with a value bias based on the cape ratio and momentum, and will initially offer exposure to the US and Eurozone regions with Japan and Asia ex-Japan to follow, according to Nicolas Aractingi, director, EFS Investment Strategies at Barclays.
"This launch makes part of a strong collaboration with Professor Shiller (pictured) which has resulted on the development of a number of index strategies that are being used successfully as underlyings for many of our investment products," said Aractingi.
SRP data shows that there are 13 structured products featuring Barclays Shiller underlyings including ten products sold by Barclays Bank Delaware linked to the Barclays Shiller CAPE US Sector in the US market and three in Portugal linked to the Barclays Shiller Cape Europe S sold by Banco Carregosa.
In addition to the long-only single stock indices, Barclays will develop market-hedged index versions, which hold a long position in the Shiller Barclays cape US single stock index and a beta-adjusted short position in the relevant benchmark index, aiming to provide a 'market neutral value' investment. This responds to investor interest in accessing the equity value risk premia, according to David Haefliger, equity derivatives structuring, EFS Solutions.
"The new family of indices will be relevant to structured products as they appeal to a wide range of risk profiles among institutional investors, and even to risk premia investors because they can be deployed as long/short strategies," said Haefliger. "The whole range of indices has been designed to address different needs and there is scope to issue option-based payoffs."
According to Haefliger, the Shiller Barclays Cape Single Stock Index Family will offer investors a new way to gain exposure to underpriced stocks. "Knowledge of the equity value premia has existed since the 1930s, and we believe this innovative take on it will allow investors a new way to access attractively priced shares," said Haefliger.
Investable indices based on academic research continue to be on demand from investors, according to Aractingi. "[There is demand] not only for smart beta indices but also for indices and strategies that are backed with academic research," said Aractingi. "That's why the partnership with Professor Shiller is not only about reputation but about the academic research behind. We expect to develop further strategies in the future that can be used in any product format including structured notes, index-linked funds, exchange-traded funds (ETFs), etc."
Professor Robert Shiller said in a statement that the new family seeks to invest in seasoned companies - old standbys - that also show good value by the cape ratio.
'This is a new and different approach to value investing that is designed to try to come closer to its original motivation: Find stocks that are well established and relatively forgotten, with a long history of earnings but underpriced in the market,' said Professor Shiller.
Professor Shiller and Barclays began their collaboration in 2010. In 2012, Barclays launched the Shiller Barclays Cape Sector Index family and the first Barclays ETN+ Shiller Cape exchange-traded note (ETN) on the NYSE Arca stock exchange which has increased its value by 17.66% (compared to 18.19% performance of the Shiller Barclays Cape US Core Sector Index) since inception. The notes will mature on October 2022.
Barclays reported in the summer of 2016 that the Shiller Barclays Cape range of indices has attracted over US$2.5bn from publically listed funds (assets linked to the index range are higher).
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