Citi has licensed the new iStoxx Global Economic Growth Select 50 Index - which was launched today by Deutsche Boerse Group's index business Stoxx Ltd., to be used as an underlying for structured products. The new index will be used to develop a range of products to complement the range of iStoxx Europe Economic Growth Select 50-linked products launched earlier this year.
Quentin Andre, global head of equity solutions sales and structuring with Citi, said there is a growing demand in thematic indices as a value-added solution to its clients, "as they offer access to innovative concepts in systematic manner, while keeping the options cost-efficient".
'The theme of looking at the origin of company revenues and IMF GDP growth forecast resonated well with our client base making the Europe index a success,' said Andre. 'Following investor demand, we are extending the theme to global companies, and launching the iStoxx Global Economic Growth Select 50 Index in cooperation with Stoxx.'
A Citi spokesperson said that the plan after licensing the index is "to offer a range of products, but expect most to be tailored for specific investors according to their demand".
"The range is primarily aimed at private banks and distributors, but can and has worked for a larger scope of clients too," said the Citi official. "We have launched thematic indices periodically over the past years, but during the last six months to a year, we have been seeing significantly increased demand, both in trades on indices we have launched as well as investors reverse enquires on specific themes. Themes vary in nature by investor, but we are seeing ESG in significantly increased demand as a filter, as well as indices which would price well in different types of structured products (e.g. income vs growth)."
The component selection of the iStoxx Global Economic Growth Select 50 Index excludes all companies which are in contravention of UN Global Compact Principles, and whose 3-month average daily traded volume is below US$3m.
The iStoxx Global Economic Growth Select 50 Index comprises stocks that combine liquidity with high dividend yields and low stock price volatility, according to Matteo Andreetto, chief executive officer, Stoxx. 'The entire basket is tilted towards companies with a substantial revenue exposure to countries with a strong economic outlook,' he said.
The new index also excludes stocks with a high volatility. The components are weighted according to a normalized gross domestic product score, whereby companies with the highest exposure to countries with the highest estimated economic growth (according the IMF) receive the largest weight.
SRP data shows that this is the second time the US bank issues a product featuring an iStoxx index. Earlier this year, in May, Citi hedged a product linked to the iStoxx Europe Economic Growth Select 50 index sold by Banca Leonardo in Italy. The fully protected note will pay a 1.5% coupon after one year with all successive coupon payments linked to the performance of the underlying.
There are over 400 structured products benchmarked to iStoxx indices listed on SRP's database, a family of indices that had US$1bn of estimated assets as of Q2 2016. The index provider has bolstered this family over the last two years with new additions such as the iStoxx Europe ESG Select 30 Index.
SRP data shows The iStoxx Europe Next Dividend Low Risk 50 index remains the most popular Stoxx smart beta indices among structured products providers with over 86 products marketed across jurisdictions followed by the iStoxx Europe Select High Beta 50 index (25 products), the iStoxx Europe Demography 50 index (21 products) and the iStoxx Global ESG Select 100 index (11 products).
Citi remains a leading provider of structured products globally with over 140,000 structures marketed across jurisdictions worth US3.1bn, year to date.
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