Barclays has teamed up with Yale economist Robert Shiller to launch the Shiller Barclays CAPE Index Family, a new series of equity indices using the cyclically adjusted price-to-earnings ratio (CAPE) as a key driver for the valuation of sectors.
"After a year-long collaboration, we are able to provide unique insights into value investing, potentially allowing investors to gain exposure to undervalued sectors with long-term performance potential," said Laurence Black, director in equity and funds structured markets.
The Indices offer equity market exposure with a value bias, and are intended for buy and hold investors with a multi-year time horizon. Initially launched based on US sectors, the indices will be extended to European sector versions in the coming months.
"The CAPE ratio, which factors in an average of ten years' earnings data to allow for mean reversion of earnings and long-term earnings cycles, is a recognised long-term measure of equity market valuation," said Robert Shiller. "These new Shiller Barclays CAPE indices will provide investors with equity market exposure with a 'value' sector bias, which may provide attractive long-term returns for buy and hold investors."
The Shiller Barclays CAPE Index Family will initially include three indices based on US sectors, each available in US dollar, sterling and euro currency versions. One of these indices is the Shiller Barclays CAPE US Sector Tilted Index, which is overweight in four favoured sectors and underweight in six least-favoured sectors, aiming to provide an "enhanced value"' investment. Meanwhile the Shiller Barclays CAPE US Sector Index, which is equally weighted in four favoured sectors, aims to provide a "focus value" investment.
The third index, the Shiller Barclays CAPE US Sector Market Hedged Index, which holds a long position in the Shiller Barclays CAPE US Sector Index and a short position according to the beta of the sectors, aims at providing a "market neutral value" investment.