Singapore Exchange’s (SGX’s) indexing business plans to start focusing more on customised factor-based and thematic indices over the next six months, as the company enters the smart beta and risk premia space, says Simon Karaban, head of index services at SGX.
For the most part, indices will be created based on the needs of individual clients rather than taking a one-size-fits-all approach, Karaban says.
SGX’s indexing unit, which was established in October 2015, acts as a calculation agent and also offers a range of its own indices, most of which are vanilla market capitalisation-weighted products. A number of the exchange’s indices target themes such as real estate or healthcare, and in May 2016, SGX also launched a range of sustainability indices.
SGX recently launched a dividend-weighted real estate investment trust (REIT) index targeting the Asia-Pacific region (ex Japan). The smart beta index is essentially a blend of thematic (real estate sector) and fundamental-based (weighted by dividends).
The dividend, or yield, fundamental factor has performed well this year as low interest rates have pushed investors to search for sources of income generation.
Karaban says that when launching new products, it is important to get the timing right while also making products easily digestible for investors. With index providers launching new offerings all the time, there is a growing number of highly-complex indices in the market that require substantial marketing and educational efforts.
