With regulators bringing more transparency to the digital assets market, institutional investors are increasingly turning to this emerging and fast-changing asset class for various reasons.

But how can they screen out the best assets in terms of quality, financial clout and commercial activity? In other words, tokens that are akin to the blue chips of the equity world.

This report delves into the STOXX^® Digital Asset Blue Chip Index’s construction process to unpick the crypto-native metrics used in asset selection. It also provides an analysis of what the index offers in terms of risk and returns and its prowess as a barometer of the underlying market.

With the World Bank estimating potential global economic losses of USD 2.7 trillion by 2030 if critical ecosystem services collapse¹, the importance of integrating biodiversity considerations into investment strategies is underscored.

As biodiversity garners increased attention and data availability expands, understanding its effect on portfolios becomes paramount. In our first edition of Perspectives, we spotlight how ISS ESG’s innovative methodologies can help assess a portfolio’s impact and natural capital dependencies.

In this paper, we use the transparency afforded by ETFs to analyze investor flows, but also look through to the underlying holdings, to understand the time-varying preferences of passive investors.

We have found that year on year, there is a great deal of variability in style, industry and regional exposures. However, these exposure preferences tend to be neutral over longer time frames. This is in contrast to a consistent preference for performance, reflected by flows going towards ETFs with strong in-year returns.

Transaction costs play a crucial role for any investor considering adopting sustainable principles in their investments. This study from ISS LiquidMetrix and STOXX investigates the costs, and cost efficiencies, of shifting a benchmark portfolio of European equities to climate-transition versions.

Biodiversity is vital for our planet and society. With the emergence of the Kunming-Montreal Global Biodiversity Framework, investors are gaining a better understanding of biodiversity-linked risks and opportunities in their portfolios.

This paper begins by exploring the current metrics available for assessing the biodiversity footprints of companies. It then describes the ISS STOXX framework for building biodiversity indices, based on three fundamental steps: “Avoid,” “Minimize,” and “Enable.”

The paper provides a quantitative analysis of the metrics used in the construction process, with a particular focus on metrics related to exclusions, biodiversity footprints, revenues from products or services that enable biodiversity conservation, emissions, and gross return performance.

As asset owners transition to sustainable investing, many seek portfolios with low tracking error to the core benchmarks they are replacing. Multiple considerations must be made when constructing such portfolios. The trade-off between tracking error, sustainability goals, and industry exposure, for example, must be managed. The authors illustrate the trade-offs across these three dimensions for a variety of sustainability metrics. In addition, sustainability portfolios may use one metric in the construction of the portfolio but may be judged on other metrics.

This article provides a high-level refresher of what tracking error means, and how we can embed it directly into portfolio construction.

When we design a benchmarked portfolio, every design choice that takes us away from the benchmark has a consequence, and every consequence has a risk. Tracking error (TE) – the humble statistic that serves as a measure of this risk – is having its day in the sun again due to its use in passive sustainable investing. It has become so prevalent, however, that its meaning can often be obscured. Intuitively, we know that a portfolio with a 1% tracking error is “closer” to its benchmark than a portfolio with a 5% tracking error, but how should we interpret the degree of difference? What does it imply for the future? And can we control this?

The goal of many investors is to improve the sustainability profile of their portfolios without straying too much from a market-cap weighted benchmark. In other words, they want to maximize their ‘green’ exposure while limiting active risk.

Our analysis shows how an optimized sustainability index can decrease active risk and free up more of the risk budget to be allocated to the desired sustainability metric(s), making the resulting portfolio a suitable replacement for a traditional benchmark.

Using Axioma’s factor risk models, Qontigo’s Applied Research team has tracked the risk ratio between the STOXX® Emerging Markets 1500 Index and the STOXX® Global 1800 Index for years. Throughout 2022 and into 2023, the EM gauge has shown lower forecast and realized volatility than the global DM benchmark. Although the ratio has inverted for a few days or weeks from time to time, this is the longest sustained inversion we have seen in data extending back to 2006. A new whitepaper investigates the drivers of this anomaly.

The future of life, the Metaverse, and everything – Using patent data to capture the greatest innovators at the next digital frontier

The Metaverse is expected to grow into a trillion-dollar investment opportunity within the present decade. A study by Bloomberg Intelligence puts the associated revenues potentially rising to USD 800 billion by 2024,  while McKinsey estimates that the Metaverse has the potential to create USD 5 trillion in value by 2030.

The STOXX^® Global Metaverse Index provides a systematic and transparent way for investors to track the performance of companies that are exposed to these technologies, using patent data to identify market leaders and innovators.

In this paper, we explore the rationale and methodology behind the construction of the index. We start by explaining the concept of megatrends and how they can be captured through thematic indexing, using a multifaceted approach. We look as well at the index performance before concluding with an outlook on the opportunities for the Metaverse in the years to come.