This paper explores the design of the STOXX U.S. Equity Factor index and the Multifactor signal that lies at the core of the STOXX Equity Factor suite designed in collaboration with BlackRock.
The STOXX Equity Factor indices were devised as core solutions that deliver above-average exposure to five factors — Quality, Value, Momentum, Small Size and Low Volatility. The indices include constraints to ensure diversification, remove unintended systematic exposures, guarantee liquidity and limit tracking error.
One of the key takeaways from the study is showing that the customized Multifactor signal behind the index has a “standalone” risk premium.
Elsewhere, the authors delve into the factor index’s outperformance to the benchmark in recent years and run an attribution analysis to understand what drove the returns.