ETF provider Lyxor is to launch an ETF based on the dividend points futures contracts currently traded on the Eurex exchange. The ETF is to be based on a new index provided by Stoxx, called the Euro Stoxx 50 dividend points futures index.
The Euro Stoxx 50 dividend points futures index replicates an investment strategy in which an equal amount of money is invested in the one, two, three, four and five year Eurex futures contracts of the same name.
Eurex currently trades a “strip” of Euro Stoxx 50 dividend points futures contracts, expiring in December each year from 2010 to 2019. These futures contracts offer a way for investors to trade future dividend expectations on this key European equity index. Current open interest in the 2010-2019 futures strip is around 550,000 contracts, with around two thirds of this total in the first three years.
For each futures contract, the final settlement price reflects the cumulative total of the relevant gross dividends declared and paid by the individual constituents of the underlying index, as calculated in the form of index points by Stoxx.
Future dividend expectations on the Eurozone’s largest 50 companies, as represented by the Euro Stoxx index, have varied wildly over the last two years. In early 2009, Eurex futures were discounting a cumulative drop in Euro Stoxx 50 dividends of around 60% during calendar years 2009 and 2010. Now, however, dividend expectations have returned to a positive, albeit moderate growth trend: Eurex futures currently discount around 5% total growth in dividends between December 2010 and December 2015, and around 11% total growth between 2010 and 2018.
IndexUniverse.eu has written twice in the last year on the subject of past and future dividend growth expectations as reflected by the sector components of the Stoxx 600 index. The articles are available here and here.
The new Stoxx index’s methodology assumes full collateralisation of the investment in futures by an investment of the index notional into the Eonia (European overnight interest rate) market. The interest earned from this collateralisation is reinvested into the futures portfolio on a daily basis. Until the next settlement date, the index value represents the value of this portfolio of five equally weighted futures contracts, with one to five years’ maturity. At the next settlement date, the shortest futures contract is settled and the portfolio is reinvested into an equal amount of one, two, three, four and five year futures contracts, and the index rolls into its next stage.
“The Euro Stoxx 50 dividend points futures index provides market participants with a single tool to measure the performance of a portfolio of multiple equal weighted futures contracts listed on the pure dividend points of the index. Dividends as a separate asset class are becoming directly investable for the first time through this new index,” said Hartmut Graf, CEO of Stoxx.
“With the launch of the Euro Stoxx 50 dividend points futures index, Stoxx has brought a major innovation to the investment world, and is now able to provide investors with a privileged access on dividends as a true asset class. This new index constitutes an additional building block to investors seeking diversification and reduced volatility,” said Isabelle Bourcier, global head of Lyxor ETF.