“I rely far more on gut instinct than researching huge amounts of statistics”
(Richard Branson, founder of the Virgin Group)
Solactive unveils new investment approach: Intuitive BetaTM
Intuitive BetaTM is a family of smart beta indices that relies on a qualitative framework of intuitive screens. A simple, rules-based approach in which intuition, or gut feeling, takes a prominent role in defining the passive investment strategy. The aim is to offer exposure to a different field of smart beta that’s less data-driven and more focused on common sense. In this context, Solactive employs simple explanatory variables of performance such as corporate longevity or workforce efficiency to select and weight index components. Intuitive BetaTM embraces simplicity, intuition and transparency.
A few examples…
Have you ever wondered what companies such as Du Pont, Pfizer, and Goldman Sachs have in common? Aside from being among the 500 largest companies in the United States, they’re some of the oldest companies around, the “Methuselahs” of the US stock market. Since corporate longevity is more the exception rather than the rule, it could be interesting for investors to gain exposure to a basket of “timeproof” companies. Alternatively, another exciting concept revolves around the idea of workforce efficiency. One of the most valuable resources of a company is its workforce. Bankers, lawyers, doctors, software developers – these are just some examples of labor-intensive jobs where the success of the firm depends mainly on the efficiency of its employees. After all, would you invest in companies with poor processes and unproductive employees?
The first Intuitive BetaTM member was the Solactive Workforce Efficiency US Large Cap Index. The idea of creating a concept around workforce efficiency came up when thinking about what resources make a company outstanding. One of these is certainly the productivity of its employees. After all, who wants to invest in companies with unproductive employees? Workforce efficiency is especially important in labor-intensive industries where the success of the firm mainly depends on its workforce, as opposed to capital-intensive industries where performance is more dependent on factors such as property, plants and equipment.
The Solactive P/E Ratio US Large Cap Index is an Intuitive BetaTM index made up of undervalued US companies, as measured by the P/E ratio. When buying equity, investors need to assess whether a stock is fairly priced relative to its earnings. Since undervalued stocks have historically tended to outperform those with high P/E ratios, the index targets stocks with the lowest P/E among US large caps. Over the period 2004-2017, the index has demonstrated an annualized return of about 10.2% compared to about 8.1% of the benchmark, thus demonstrating that this intuitive investment idea can be built into an index that generates outperformance.
What’s the average age of the 100 oldest companies in the United States? The Solactive US Established Companies Index deals exactly with this question by selecting the 100 oldest US companies. By investing in a basket of “time-proof” companies, where the average company is 159 years old, investors can gain exposure to companies that have demonstrated resilience over time through repeated business cycles. Examples of companies in the index include Du Pont (founded in 1802), Goldman Sachs (founded in 1869) and Pfizer (founded in 1849).
With Intuitive BetaTM, Solactive employs simple explanatory variables of performance as the basis for index strategies.
|Solactive Workforce Efficiency US Large Cap Index||5860.84|
|Solactive US Established Companies Index GTR||3993.21|
|Solactive P/E Ratio US Large Cap Index||4503.03|