Stoxx has licensed the Euro iStoxx 50 ESG Focus and the Euro iStoxx 50 ESG Focus GR Decrement 5% indices to Barclays as underlyings for a range of structured products.
The indices will resonate with retail because they can be used in two different ways, according to Roberto Lazzarotto, head of Emea sales at Stoxx. "The Decrement 5% index will be more relevant to structured products investors because it provides efficiency around the creation of exotic structures," said Lazzarotto. "The index offers more flexibility for the product manufacturer to provide meaningful market exposure with additional elements of protection or participation or yield for investors (because of the cheaper optionality the index offers). But, for those seeking a linear exposure, they will look for tracker certificates and delta one products linked to the Focus Index."
The transparent design of the Focus Index makes it particularly attractive for traditional structured products and a simple alternative to the Eurostoxx 50 benchmark, according to Arnaud Heckenroth, managing director, head of Emea equity exotics and hybrid structuring at Barclays. "A decrement version completes the family to meet current client demand," said Heckenroth.
Barclays is offering the index to private banking clients in several countries, according to Jean-Christophe Gerard (pictured), global head of investments for private bank and overseas services at the UK bank. "Our private bank clients will benefit from a range of structured product investment opportunities linked to this index family which offers a rules-based and transparent approach to ESG investing," said Gerard.
The decrement version replicates the Euro iStoxx 50 ESG Focus Gross Return Index, assuming a constant 5% performance deduction per annum. The deduction accrues constantly on a daily basis. Consequently, due to the percentage of performance being subtracted, the decrement index underperforms the standard gross return index that includes a gross dividend investment.
The new indices will enable investors to overweight Eurostoxx 50 companies that rank highest in terms of ESG, according to a model provided by Sustainalytics. The methodology organises the companies in buckets of 10 from the best scoring to the worst. Companies in violation of United Nations Global Compact Principles are scored zero. A weighting scheme distributed across the five buckets overweighs the best scorers. "This enables us to put a premium on each component based on their individual ESG score," said Lazzarotto. "The concept behind the strategy is very straight forward and responds to demand across investor types.
"On one hand, you have demand from institutional investors all the way up to pension funds and government agencies, where asset allocators are seeking exposure to and compliance with ESG principles," said Lazzarotto. "On the other hand, you have retail investors which are increasingly aware of the benefits of ESG investing from an environmental, social and governance perspective."
This is the second time Barclays has licensed ESG indices to develop structured products, after partnering with MSCI to launch a family of co-branded ESG fixed income indices for institutional investors to use in index-linked investment products.
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