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Investment Intelligence Hub – Breaking down barriers and growing assets

Investment Intelligence Hub – Breaking down barriers and growing assets

Jul. 11, 2017

Jul. 11, 2017

This article first appeared on G20 magazine.

By Matteo Andreetto, STOXX Chief Executive Officer.

The investing world is undergoing a substantial transformation whose roots lie in 20th century research, but that has materialized in force in this millennium. Riding on relentless technological innovation, a rich menu of new and deeper information sources collectively named ’big data,’ multiple interconnection, and intelligent mechanisms have amplified the role and possibilities of data processing in investment decisions.

Amid this transformation, at STOXX we see our role evolving from an indexing business to an Investment Intelligence Hub that converts data into investment tools that are as varied as they are easy to use.

A powerful megatrend

At the Investment Intelligence Hub, we crunch the expanding collection of data into quantitative analysis and mathematical models to generate ‘smart’ financial performance. This process is bringing up countless new investment means and leaving few corners of the asset-management and financial-services industries free from disruption – a real ‘megatrend’ of our times.

Neither artificial intelligence nor quantitative investing is new. But at STOXX we are taking data-based intelligent investing techniques and expanding them in two directions: first, we make them accessible for the entire industry and the general public; secondly, we deepen the pioneer concepts into ever new territories.

A key piece in the strategy toolbox

This distinctive investment approach calls for a re-evaluation of the traditional idea of indexing as a rigid way of investing. At STOXX we find ourselves at the center of this financial-technology transformation, and growing alongside it. By defining systematic and smart benchmarks, we are helping incorporate data-driven decisions into portfolio construction via passive approaches.

From our traditional market-weighted indices, we have progressed into new, targeted and rules-based products designed with methodical precision and resourceful capabilities. Inspired by what was thought impossible, we plunge forward into what can be achieved and bring forth this new investment megatrend.

The democratization of customized passive investment solutions

We see our entire indexing offering as a key piece in the investors’ strategy toolbox, one that marries quantitative and qualitative analysis, and builds possibilities for all investors. From the retail investor who gets instant investment advice from a robot, to the asset owner that can customize the portfolio exposure by, for example, mitigating, at the ease of a computer click, its portfolio’s climate-related risks.

Alongside our established research and high-profile cooperative model with the best universities, we are willing to explore the possibilities of a crowd-sourced research process and design channel, where our products can incorporate different interpretations and uses of the same data, enriching diverse strategies. STOXX strategy designers, our asset manager clients, investment consultants and the investors themselves could soon have access to the same data through a dedicated strategy design tool, or open application-programming interface (API), which provides all the building blocks of any given strategy that they can put together.

Innovation fueling new strategies and asset growth

In a new world that may seem a bit intimidating, the simplicity of indexing is turning investors to the passive investing realm. Money in index products rose in the past two decades from 55 billion dollars to 4 trillion – a twenty-year compound annual growth rate of almost 24%, according to data from Deutsche Boerse1, parent company of STOXX.

This is further evidence that an increasing number of investors and their wealth advisors are acknowledging that passive investing is taking over the helm from the active approach due to its myriad of advantages at a lower cost.

Alternative weighting and factor-investing strategies dubbed smart-beta, and the adoption of ETFs for new asset classes will only add stimulus to this progress. Deutsche Boerse forecasts that passive investing is on its way to represent a third of global assets under management.

A technology-powered new frontier

Our Investment Intelligence Hub begins at the end of the comfort zone of traditional indexing, we believe. A new frontier powered by technology and the people who can use it lies right in front of us. Everyone at STOXX embraces innovation and puts it at the service of clients. We have made innovation the main engine evolving our business for the past 20 years, leading to an expanding suite of strategies, which fuel the growth of assets in the passive investing universe described earlier.

We are motivated and inspired to design simple yet powerful products for investors to tackle the threats and opportunities presented by today’s interconnected global economy. The iSTOXX FactSet Thematic Indices based on FactSet Revere data, the iSTOXX Europe Factor Indices developed with Alpha Centauri, or the STOXX Climate Impact and Climate Awareness Indices based on CDP data, are just the latest ones that come to mind.

Each undertaking is an original resource that has been utilized to fulfill a new ambition. Because ultimately we know that the higher we aspire to, the more our clients will get: a more knowledgeable decision-making process, better-controlled risk, and lower costs. All of which translates into higher and more efficient returns.

I encourage everyone to look beyond the old barriers and re-consider even the most established assumptions. The new frontier couldn’t look more promising.

1 “Future of Fintech in Capital Markets,” Deutsche Boerse Group & Celent, June 20, 2016.

 

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