LONDON, May 4 (IFR) - Eurex has listed its first contracts
linked to iStoxx European equity factor indices, allowing
investors to trade six individual risk factors in futures
The indices, which were developed in collaboration with
independent asset management firm Alpha Centauri, allocate to
alternative sources of beta in an attempt to deliver equity-like
returns with low correlation.
Academic research suggests that equity returns can be
explained by factors that are supplemental to the market risk.
While some literature points to as many as 150 factors that
drive equity returns, the latest contracts offer exposure to the
six core risk factors; size, value, carry, momentum, low risk
“A growing number of our clients are turning to factor
investing as a way to generate returns passively,” said Zubin
Ramdarshan, head of product R&D equity and index at Eurex. “Now
with futures on Eurex, our clients can implement their views
while hedging their positions.”
The exchange executed its first lots on Wednesday – the
first day of listing - as more than 3,600 iStoxx Europe Momentum
Factor Futures traded.
The listing adds to futures on MSCI North America factor
indices that are already traded on the Frankfurt-based exchange.
“We’ve been aware of demand for European factor exposure for
a while and we wanted to have a robust reliable benchmark
provider,” said Ramdarshan. “It’s important for us to understand
the methodologies and make sure we were referencing the right
provider for the European region.”
Futures markets have lagged behind exchange-traded funds in
offering investors access to individual risk premia, but the
contracts are seen as a crucial development, providing investors
with the opportunity to take long and short positions with ease,
and lending themselves to strategies that weight factors based
on signals from a variety of macro factors.
While many ETFs track bank proprietary indices, the latest
futures contracts offer exposure to transparent benchmarks that
publish full methodology. The contracts also offer efficiency
benefits associated with futures markets including price
discovery, central clearing and margin efficiencies.
Back tests show that all the iStoxx single factor indices
provided excess returns relative to the Stoxx Europe 600
benchmark over a period of 11 years, with correlations ranging
from -0.71 (low risk) to a maximum of 0.03 (value).
Research from Alpha Centauri suggests that investors can
enhance the factor isolation by pairing a long position in the
futures contracts with a short position on Stoxx 600 futures.
“We view the futures as part of an active management mandate
where investors may be looking for a more efficient instrument
to implement a factor strategy,” said Ramdarshan.
“Factor-driven investing is an active decision but it’s part
of that evolution of passive investing where there’s an overlay
of a quantitative screening to complement the passive approach.”
(Reporting by Helen Bartholomew)