First corporate bond index and European product offerings
Dow Jones is planning to launch a range of European products including style-based indices and two exchange-traded funds based on the Dow Jones Industrial Average.
The company has also created its first corporate bond index, which it is set to expand into a range of bond indices.
Luxor Asset Management, a subsidiary of SocGen Paris, was the first company to launch an exchange-traded fund based on the Dow Jones Industrial Average. There is expected to be two more ETF launches based on the industrial average and two ETFs which will be based on the Dow Jones Global Titans index.
Mike Petronella, managing director of Dow Jones Indexes, said: 'Europe is a very fertile market for these products.'
He said the funds will offer investors cheap and hopefully liquid access to 30 of the top industrial companies in the US.
Petronella added that he is not worried the index is quite concentrated. He said: 'There are only 30 stocks but a large proportion of market cap is covered. What simpler way is there to get exposure to the US market than via the Dow?'
Petronella believes ETFs could be especially popular among those wanting to short the US markets.
No further launches of ETF's are planned in the short term, in order to maintain the exclusivity of the products for the three companies.
Next in line is a series of style products created using the straightforward process of dividing the European stocks Dow covers into large, medium and small companies, every segment of which will be cross-divided into growth, value and those which are not clearly either.
In the developed European markets, 95% of listed companies are covered.
The top 70% of market capitalisation count as large cap, the next 20% mid cap and the top half of the remaining 10% are small cap.
Petronella said: 'However, the costs of an ETF will be higher in the EU than in the States.'
The extra cost of buying a basket of international stocks bought on different exchanges explains some of the extra costs, as does the simple fact that trading costs in Europe are higher than across the Atlantic.
This is something Petronella believes will change, but it will require an increase in liquidity throughout the continent to put pressure on costs.
Petronella said: 'You need all the components of the trading cycle to become more efficient.'
He explained that increased trading levels of 'cash, derivatives and ETFs are all needed to get that virtuous cycle going.'
As part of Dow Jones's attempt to secure an increasing portion of the relatively immature European market, the company is keen to increase institutional sales by constructing customised indices to give exposure to specific sectors and styles.
On the US side, Dow Jones has constructed its first corporate bond index.
Although the company has not started to market it as yet, the eventual plan is to increase the number of bond indices.
However, Petronella pointed out that there are difficulties involved with bond index creation that you do not get with equities.
The primary issue is that pricing is not as transparent. A bond might be in the index but held solely by large institutions. With non-existent liquidity, pricing becomes difficult.
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