STOXX Maximum Dividend 40 Indices. September 2012

Transcription

1 STOXX Maximum Dividend 40 Indices September 2012

2 STOXX Maximum Dividend 40 Indices is a liquid and tradable underlying for financial products Summary Key features» STOXX Maximum Dividend 40 Indices are regional blue-chip indices comprising the 40 highest dividend yielding companies from respective regional benchmark index» The constituent selection as well as the weighting scheme is based on dividend forecasts» The index aims to maximize performance obtained from dividend yields on a short-term basis due to the fact that it tracks dividend paying companies from implementation period to implementation period:» At cut-off date, all companies are selected that have a dividend ex date forecasted in the upcoming implementation period» Dividend ETFs (Exchange Traded Funds) offer investors a transparent and diversified play for dividend investing» Cap factor leads to sufficient diversification within the indices and enable the indices to underlie financial products such as ETFs 2

3 Agenda 1. Investment Rational: Dividend Investing Page Dividends & Volatility Page Methodology Page Performance Page 14 Appendix Page 25 3

4 STOXX Maximum Dividend 40 Indices 1. Investment Rational: Dividend Investing 4

5 Distribution through dividends has a number of advantages which are captured through the maximum dividend concept The benefit pyramid of dividends Clientele» A dollar today is worth more than a dollar tomorrow» Well suited for pension funds and investors who desire stable income streams without speculation on the share price movement Transparency» Dividends forecasts are publicly available and have high degree of reliability» Forecasts are done by experts and are available on Bloomberg Performance» Maximum Dividend Indices (NR) outperformed the market (exception North America) especially in times of high volatility and market turmoil» Tax benefits (dividend imputation 1) in Australia and New Zealand, tax exemptions (differs among countries 2) )) 1) 2) 5

6 Earnings distribution through dividends has important consequences for both: Companies and Shareholders Important factors of dividend distribution 1 Agency costs Commitment 2» Earnings distribution through dividends alleviates the agency costs of inside equity 2)» Agency costs of equity arise when there is a lot of excess cash which could motivate managers to squander shareholder s money» Dividends signal company performance» If a company starts to pay out dividends, this may signal limited growth potential and absence of positive NPV projects» On the other hand ability of companies to distribute earnings through dividends is perceived positively 3) (Clientele effect) Dividends» Distribution through dividends is a strong commitment» In case of dividend reduction or abolishment significant negative stock price reaction» Stock repurchases are more flexible with regard to commitment» Dividends are less volatile than earnings» Strong commitment» Industries with stable CF s dominate the index» STOXX Europe Maximum Dividend 40: 53.8% of constituents from industries with stable Cash Flow s 1) 3 Signaling Volatility 4 1) Utilities 26.6%, Telecommunication 13.9%, Insurance 13.3%. 2) G.Grullon, R. Michaely: Dividends, Share Repurchases and the Substitution Hypothesis, Journal of Finance, 2002, p ) G.Grullon, R. Michaely: Dividends, Share Repurchases and the Substitution Hypothesis, Journal of Finance, 2002, p

7 STOXX Maximum Dividend 40 Indices 2. Dividends & Volatility 7

8 The analysis aims to look at performance implication of Maximum Dividend Indices in times of high volatility Description, Limitations and Results Description» Comparative analysis on the regional level» Comparison of performance of net return/price return index and the broad regional index as proxy for the market» Comparison of NR and PR indices allows to draw conclusion on the dividend impact» Comparison of performance and volatility» Hypothesis: Dividends result in liquidity outflow and worsen company performance especially in times of turmoil Limitations» In case of Japan comparability towards the benchmark is biased; TMI includes small firms, which are not included in the Maximum Dividend Index because of the restriction according to the size (measured as market capitalization)» Coverage of the indices» Volatility indices and interest rate indices cover not the full region under assessment but mostly parts of it» Data does not support Hypothesis (exception North America) 8

9 Dividends do not exacerbate performance in times of economic downturn and high volatility Assessment of volatility impact on dividends in Europe Index Performance 1) Overview» In times of economic downturn volatility increases whereas index values decrease» Performance of Maximum Dividend Index (Net Return) was better than that of the market, especially in times of crisis» Performance of Net return index is significantly higher than that of Price Return (PR) index» PR does not account for impact of dividends, so better performance can be explained through dividends Key figures 2) Performance Volatility STOXX Europe Max. Div. 40 NR 9.19% 19.76% STOXX Europe Maximum Dividend 40 NR STOXX Europe Maximum Dividend 40 PR EURO STOXX 50 Volatility (VSTOXX) Index STOXX Europe 600 PR STOXX Europe 600 NR STOXX Europe 600 NR -0.58% 20.91% 1) Figures on the basis of data from 20/03/2000 to 22/08/ ) Annualized figures from 20/03/2000 to 22/08/2012 9

10 Data does not allow to draw the conclusion that dividends payments resulted in bad performance Assessment of volatility impact on dividends in North America Index Performance 1) STOXX North America Maximum Dividend 40 NR STOXX North America 600 PR STOXX North America Maximum Dividend 40 PR VIX Index 2) Overview» In times of economic downturn volatility increases whereas index values decrease» Maximum Dividends Index NR (impact of dividends included) underperformed the market NR index in times of economic downturn and high volatility» However, the difference between Maximum Dividend NR and PR indices is higher than that of the market which indicates increase dividend yield and proves the concept» In the period under observation, data does not allow to conclude that dividends were additional financial burden Key figures 1) Performance Volatility STOXX North America Max Div. 40 NR 3.75% 23.39% STOXX North America 600 NR 5.02% 22.40% STOXX North America 600 NR 1) Figures on the basis of data from 22/03/20004 to 04/09/2012; performance annualized 2) Volatility index od the S&P 500 Index. 10

11 Hypothesis that dividends worsen financial situation in times of economic downturn is not supported by data reverse true Assessment of volatility impact on dividends in Asia/Pacific Index Performance 1) Overview» In times of economic downturn volatility increases whereas index values decrease» Maximum Dividend Index NR outperformed the market at any time, especially at the time of volatility peaks» Price return index slightly outperformed the market price return index» Net return accounts for the effect of the dividend that is why it can be concluded that dividends improved performance Key figures 1) Performance Volatility STOXX Asia Pacific Max Div. 40 NR 11.62% 21.55% STOXX Asia Pacific 600 NR 3.18% 20.64% STOXX Asia Pacific Maximum Dividend 40 NR STOXX Asia Pacific Maximum Dividend 40 PR STOXX Asia Pacific 600 NR STOXX Asia Pacific 600 PR VHSI Index 2) VNKY Index 3) 1) Figures on the basis of data from 22/03/20004 to 04/09/2012; annualized performance figures 2) Expected volatility of Hang Seng Index. 3) Nikkei Stock Average Volatility Index 11

12 Data suggests that dividends had a negative impact on performance because of distribution of funds Assessment of volatility impact on dividends in Japan Index Performance 1) Overview» Maximum Dividend indices underperformed the market on net and price return basis» The stock picking was such that companies in the index underperformed the market» In this case data suggests that dividends were an additional burden because of cash outflow and had a negative impact on performance Key figures 1) Performance Volatility STOXX Japan Maximum Dividend 40 NR -4% 23.95% STOXX Japan TMI NR -0.25% 26.28% STOXX Japan Maximum Dividend 40 NR STOXX Japan Maximum Dividend 40 PR STOXX Japan Total Market NR STOXX Japan Total Market PR VXJ Index (Volatility Index Japan) 1) Figures on the basis of data from 31/01/2011 to 04/09/

13 STOXX Maximum Dividend 40 Indices 3. Methodology 13

14 STOXX Maximum Dividend 40 Indices aims to maximize the dividend yield of the index portfolio Index methodology overview: regional benchmark Universe/ Ranking» STOXX regional benchmark index» All companies are ranked according to their liquidity adjusted expected dividend yield 1)» The liquidity adjustment considers the ratio of dividend yield and equity turnover in order to select high dividend yielding companies with high liquidity Selection» 40 companies with the highest expected dividend yield within upcoming quarter are selected» Market Cap > 1bn EUR» ADTV (3-month) > 4mn EUR» Index is reviewed quarterly in March, June, September and December Calculation» Constituents are weighted according to expected dividend yield» Maximum weight of 10% per constituent» The index calculation is based on closing prices and dividend forecasts as of last trading day in January, April, July and October 2) Constituents are shifted on a quarterly basis in order to always select the top dividend yielding companies 1) The expected dividend yield is calculated on the basis of announced or expected dividends and the closing price at the time of ranking (January, April, July and October) 14 2) The review frequency of STOXX Country Maximum Dividend Indices depends on the distribution of the country s dividend ex date

15 STOXX Maximum Dividend 40 Indices 4. Performance 15

16 STOXX Global Maximum Dividend 40 shows significant outperformance and achieves huge dividend yields Concept Overview: Global STOXX Global Maximum Dividend 40 Performance Chart 2)» All constituents of STOXX Global 1800 Index are eligible for index inclusion if fulfilling the following» ADTV 1) (3-month) > 4mn EUR» Market Capitalization > 1bn EUR» Companies are ranked according to their dividend yield calculated based on 3-month dividend forecasts» The top 40 dividend yielding companies are selected and weighted by their net dividend yield with a cap of 10% per constituent» The Index is reviewed in March, June, September and December where cut-off dates are January, April, July and October STOXX Global Maximum Dividend 40 STOXX Global Name Performance Volatility Dividend Yield (net) STOXX Global Maximum Dividend 40 NR STOXX Global 1800 NR 7.69% 19.64% 11.02% 4.63% 16.77% 2.19% 1) ADTV (3-month): Average Daily Value traded over 3 month measured 3-month back starting at cut-off date 2) Backtested data as of 22/03/ /09/2012, Performance key figures have been calculated as annualized figures in this time frame. 16

17 On Global markets historical dividend yield can be clearly improved applying STOXX Maximum Dividend concept Historical net dividend yields on annual basis 1) 14% 12% 10% 8% 6% 4% 2% 0% STOXX Global Maximum Dividend 40 STOXX Global ) Historical net dividend yield is calculated based on the difference between annual performance of the price and net return index. The calculation is done based on full calendar years using ytd perofmance. 17

18 STOXX Europe Maximum Dividend 40 Index significantly outperforms STOXX Europe 600 showing huge dividend yield Concept Overview: Europe STOXX Europe Maximum Dividend 40 Performance Chart 2)» All constituents of STOXX Europe 600 Index are eligible for index inclusion if fulfilling the following» ADTV 1) (3-month) > 4mn EUR» Market Capitalization > 1bn EUR» Companies are ranked according to their dividend yield calculated based on 3-month dividend forecasts» The top 40 dividend yielding companies are selected and weighted by their net dividend yield with a cap of 10% per constituent» The Index is reviewed in March, June, September and December where cut-off dates are January, April, July and October STOXX Europe Maximum Dividend 40 STOXX Europe Name Performance Volatility Dividend Yield (net) STOXX Europe Maximum Dividend 40 NR STOXX Europe 600 NR 9.19% 19.76% 11.65% -0.58% 20.91% 2.61% 1) ADTV (3-month): Average Daily Value traded over 3 month measured 3-month back starting at cut-off date 2) Backtested data as of 20/03/ /09/2012, Performance key figures have been calculated as annualized figures in this time frame. 18

19 On European markets STOXX Maximum Dividend concept works best with regard to improving historical dividend yields Historical net dividend yields on annual basis 1) 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% STOXX Europe Maximum Dividend 40 STOXX Europe 600 1) Historical net dividend yield is calculated based on the difference between annual performance of the price and net return index. The calculation is done based on full calendar years using ytd perofmance. 19

20 STOXX North America Maximum Dividend 40 shows higher net dividend yield compared to STOXX North America 600 Concept Overview: North America STOXX North America Maximum Dividend 40 Performance Chart 2)» All constituents of STOXX North America 600 Index are eligible for index inclusion if fulfilling the following» ADTV 1) (3-month) > 4mn EUR» Market Capitalization > 1bn EUR» Companies are ranked according to their dividend yield calculated based on 3-month dividend forecasts» The top 40 dividend yielding companies are selected and weighted by their net dividend yield with a cap of 10% per constituent» The Index is reviewed in March, June, September and December where cut-off dates are January, April, July and October STOXX North America Maximum Dividend 40 STOXX North America Name Performance Volatility Dividend Yield (net) STOXX North America Maximum Dividend 40 NR STOXX North America 600 NR 3.75% 23.39% 3.88% 5.02% 22.40% 1.71% 1) ADTV (3-month): Average Daily Value traded over 3 month measured 3-month back starting at cut-off date 2) Backtested data as of 22/03/ /09/2012, Performance key figures have been calculated as annualized figures in this time frame. 20

21 With regard to historical dividend yield the STOXX Maximum Dividend concept can be verified on North American markets Historical net dividend yields on annual basis 1) 7% 6% 5% 4% 3% 2% 1% 0% STOXX North America Maximum Dividend 40 STOXX North America 600 1) Historical net dividend yield is calculated based on the difference between annual performance of the price and net return index. The calculation is done based on full calendar years using ytd perofmance. 21

22 STOXX Asia/Pacific Maximum Dividend 40 clearly outperforms STOXX Asia/Pacific 600 and has better net dividend yield Concept Overview: Asia Pacific STOXX Asia/Pacific Maximum Dividend 40 Performance Chart 2)» All constituents of STOXX Asia/Pacific 600 Index are eligible for index inclusion if fulfilling the following» ADTV 1) (3-month) > 4mn EUR» Market Capitalization > 1bn EUR» Companies are ranked according to their dividend yield calculated based on 3-month dividend forecasts» The top 40 dividend yielding companies are selected and weighted by their net dividend yield with a cap of 10% per constituent» The Index is reviewed in March, June, September and December where cut-off dates are January, April, July and October Name STOXX Asia Pacific Maximum Dividend 40 STOXX Asia Pacific 600 Performance Volatility Dividend Yield (net) STOXX Asia Pacific Maximum Dividend 40 NR STOXX Asia Pacific 600 NR 11.62% 21.55% 9.1% 3.18% 20.64% 2.2% 1) ADTV (3-month): Average Daily Value traded over 3 month measured 3-month back starting at cut-off date 2) Backtested data as of 22/03/ /09/2012, Performance key figures have been calculated as annualized figures in this time frame. 22

23 Historical dividend yield can be significantly improved by applying the maximum dividend concept Historical net dividend yields on annual basis 1) 14% 12% 10% 8% 6% 4% 2% 0% STOXX Asia/Pacific Maximum Dividend 40 STOXX Asia/Pacific 600 1) Historical net dividend yield is calculated based on the difference between annual performance of the price and net return index. The calculation is done based on full calendar years using ytd perofmance. 23

24 While performing similar STOXX Japan Maximum Dividend 40 shows higher annualized net dividend yield Concept Overview: Japan STOXX Japan Maximum Dividend 40 Performance Chart 2)» All constituents of STOXX Japan 600 Index are eligible for index inclusion if fulfilling the following» ADTV 1) (3-month) > 4mn EUR» Market Capitalization > 1bn EUR» Companies are ranked according to their dividend yield calculated based on 6-month dividend forecasts» The top 40 dividend yielding companies are selected and weighted by their net dividend yield with a cap of 10% per constituent» The Index is reviewed in June and December where cut-off dates are January and October Name STOXX Japan Maximum Dividend 40 STOXX Japan 600 Performance Volatility Dividend Yield (net) STOXX Japan Maximum Dividend 40 NR -3.08% 20.68% 3.0% STOXX Japan 600 NR -4.56% 21.5% 1.7% 1) ADTV (3-month): Average Daily Value traded over 3 month measured 3-month back starting at cut-off date 2) Backtested data as of 31/01/ /09/2012, Performance key figures have been calculated as annualized figures in this time frame. 24

25 STOXX sales contacts Americas Europe Asia ETFs, Structured products Asset Managers, Investors Rod Jones Head of Sales North America (mobile) Rosanna Grimaldi Head of Sales Europe, Asia, LatAm, Middle East +41 (0) (mobile) Lucas van Berkestijn Head of Buy-Side Sales Europe, Asia, LatAm, Middle East +41 (0) (mobile) 25

26 STOXX Maximum Dividend 40 Index Appendix 26

27 STOXX Europe Maximum Dividend 40 index follows a stand alone concept for the European market Competitor Overview FTSE Dividend + Others STOXX Europe Maximum Dividend 40 Indices» FTSE UK Dividend+ (50)» FTSE/JSE Dividend+» FTSE/Taiwan Dividend+» MSCI High Dividend Yield» S&P 500 Dividend Aristocrats» DJ Select Dividend» FTSE High Dividend Yield» STOXX Europe Maximum Dividend 40 Index Universe» FTSE UK 350» FTSE/JSE All Share» FTSE TWSE Taiwan 50, FTSE TWSE Taiwan Mid-Cap 100» Respective equity indices offered by index provider» STOXX Europe 600 Index Index Concept» Based on 1 year dividend forecasts» Semiannual review in March & September» Ranking, selection and weighting acc. to dividend yields» Includes liquidity and Market Cap thresholds for index inclusion» Above mentioned concepts use historical dividend data rather than forecasts and are therefore not comparable to the concept at hand and are only listed here for the sake of completeness» Based on 3-month dividend forecasts» quarterly review in March, June, Sept. & Dec.» Ranking, selection and weighting acc. to liquidity adjusted dividend yields» Includes liquidity and MCap screening Competitor overview shows that no similar concept to the STOXX Europe Maximum Dividend 40 one exists so far on the European market 27

28 Disclaimer The indices in the presentation and the trademarks used in the index names are the intellectual property of STOXX Ltd, or SIX Swiss Exchange AG, or Deutsche Börse AG. The use of the STOXX, DAX, and SMI indices and of the respective index data for financial products or for other purposes requires a license from STOXX, Deutsche Börse AG, or SIX Swiss Exchange AG. STOXX and its owners do not make any warranties or representations, express or implied, with respect to the timeliness, sequence, accuracy, completeness, currentness, merchant- ability, quality, or fitness for any particular purpose of its index data. STOXX and its owners are not providing investment advice through the publication of indices or in connection therewith. In particular, the inclusion of a company in an index, its weighting, or the exclusion of a company from an index, does not in any way reflect an opinion of STOXX or its owners on the merits of that company. Financial instruments based on the STOXX, DAX, or SMI indices are in no way sponsored, endorsed, sold, or promoted by STOXX or its owners. About STOXX STOXX Ltd. is an established and leading index specialist of European origins. The launch of the first STOXX indices in 1998, including the EURO STOXX 50 Index, marked the beginning of a unique success story, based on the company s neutrality and independence. Since then, STOXX has been at the forefront of market developments, continuously expanding its portfolio of innovative indices and now operating on a Europe level, across all asset classes. The indices are licensed to more than 400 companies among the world s largest financial products issuers, capital owners, and asset managers. They are used not only as underlyings for financial products such as ETFs, futures and options, and structured products, but also for risk and performance measurement. In addition, STOXX Ltd. is the marketing agent for the indices of Deutsche Börse AG and SIX Swiss Exchange Indices, among them the DAX and the SMI indices. 28