Barclays readies smart beta-linked range

Barclays Bank has teamed up with Roubini Global Economics to launch today the Roubini Barclays Country Insights Indices, a family of tradeable equity indices based on the Roubini Country Insights model.

The Roubini Barclays Country Insights Indices, co-developed by Roubini Global Economics and Barclays’ Equity and Funds Structured Markets Investment Strategies group (EFS), aim to provide enhanced beta exposure by notionally allocating exposure, whilst considering liquidity, in a systematic manner to equity benchmark indices in countries that the Roubini Country Insights model perceives to be the most fundamentally sound. The indices will be available in four versions: all-world, developed markets, developed markets ex-North America and emerging markets.

The Roubini Barclays Country Insights Indices will offer investors a way to differentiate between countries in today’s difficult macro-environment, and offer a tradeable mechanism to gain access to enhanced beta across the globe, said Fabien Labouret, global head of EFS Investment Strategies at Barclays.

As a tradeable series of indices, the Roubini Barclays Country Insights Indices were designed to be used as underlyings for structured products and passive investments, according to Laurence Black (pictured), director, EFS Investment Strategies. “As part of our design process we pre-tested the indices with some clients which provided us with input around what clients want and what they expect to achieve,” said Black. “We have already received interest from a few institutional investors and we are confident the indices will be used in products aimed at different client segments.”

The Roubini Country Insights model, said Black, scores countries with an investment attractiveness score based on an analysis of over 2500 data points from the Bank for International Settlements, the International Monetary Fund, the World Bank, the World Economic Forum and Gallup Polls. The model aims for a granular assessment of each country across a variety of metrics designed to measure investment attractiveness, such as its ability to innovate, its demographic make-up, the quality of education, and availability of healthcare. The Roubini Country Insights model not only takes into consideration a country’s macro-economic performance, but also other factors directly relevant to a nation’s growth potential in areas such as policy, political risks and social stability.

“We think these indices will be an interesting underlying to be used in insurance-based products for investors seeking to invest in the asset side, in retirement plans, pension funds and annuities, and we also see private banks deploying the indices for structured products in different formats, as well as by mutual fund managers and exchange-traded funds (ETF) providers,” said Black. “We believe the concept appeals to institutional and retail investors alike. There is a tremendous amount of money invested in traditional country benchmarks, and we think our indices will provide investors with an alternative to diversify their country exposures.”

For the development of these indices, said Black, the bank has capitalised on its own ability to design indices coupled with “what we believe is the best macro research provided by Roubini Global Economics”.

“The majority of investors would not invest in a company without first assessing its assets, liabilities and ownership structure. Investors may wish to perform a similar analysis when looking at the economic attractiveness of a country, said Paul Domjan, managing director at Roubini Global Economics. “Instead of focusing entirely on a country’s ‘income statement’ – namely its short-term economic performance – the indices use current data attempting to understand the investment risk and benefits of a particular country or region. These data include factors that impact a country’s ‘balance sheet’, including the health of the banking system, the total debt of the economy, the age of the population and its ability to innovate, along with social factors including inequality and education.”

One of the appealing aspects of the Roubini Country Insights model is that everything is systematic and algorithmic, with no discretion, according to Black.

“This Roubini Country Insights model went live in 2009 and is used by financial institutions to evaluate country risk, by asset managers to generate investment ideas, and by corporates for long term planning,” he said. “We have been working on these indices for over a year to make sure they were extensively tested and believe we are going to get significant traction because the selection of countries is not done at a high level but using an in-depth quantitative data approach allowing us to select the fundamentally strongest countries.”