Dow Jones has launched a family of risk control indices and one targeting the Islamic investment market.
The Dow Jones Volatility Risk Control indices provide access to Europe, the Eurozone and the Bric countries (Brazil, Russia, India and China) through the Dow Jones Europe Titans 80, Dow Jones Eurozone Titans 80 and the Dow Jones Bric 50 respectively, with added volatility controls.
When volatility reaches a pre-defined level - set at 5%, 10%, 15% or 20% -the index will re-allocate its investment, moving away from equities and into cash.
Similar risk control indices have been developed by other index providers and investment banks and although Dow Jones has previously offered risk control through its custom indexing business, this is the first risk control index under the Dow Jones brand.
"We have seen a trend towards managing risk," says Deborah Ciervo, senior director international markets and products at Dow Jones in New Jersey.
"All of these launches address that in one way or another; they are alternatives to traditional indexes and they are especially popular given current market conditions."
She adds that the reason for starting the risk control index suite with European and emerging market underlyings is that there has been more interest in risk control from Europe. However, she adds: "this is an overlay strategy so with the methodology in place, we can apply it to any index".
Rounding off its new offering is the Dow Jones Islamic Market Global Select Dividend Index, which combines two successful index families, says Ciervo: select dividend and Islamic indices. "We have pioneered both areas in the US," she says.
Ciervo says that the company's Islamic indices are widely benchmarked and the US Select Dividend Index has around US$6bn of ETF assets linked to it through an iShares fund.
Unlike its current select dividend indices, Dow Jones' new index will be weighted by fundamentals as well as dividend yield . It will also be screened in accordance with Shariah principles.
Dow Jones has licensed the new select dividend index to two of its clients for structured products; it is in conversations with clients about potentially licensing the risk control indices.
The index provider will be adding further select dividend indices to its suite early next week.
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