As one of the most active providers of factor-based indexing, with more than EUR 41 billion in assets invested in its factor strategies, STOXX’s offering continues to grow, with a strong focus on bringing research-led innovation into index design.
In April STOXX announced a strategic collaboration with leading factor investing academic and practitioner Dr. Andrew Ang, to jointly develop the iSTOXX® Ang Research Enhanced Index suite. The new indices are designed to deliver dynamic, benchmark-aware exposure to Value, Quality and Momentum, while limiting unintended systematic exposures and controlling turnover.
Dr. Ang brings extensive expertise in factor tilting and systematic investment strategies to the STOXX collaboration. A former Columbia Business School professor and, most recently, Managing Director and Head of Factors, Sustainable and Solutions at BlackRock, Dr. Ang helped shape the modern factor investing landscape — including producing seminal work on the low-risk anomaly that underpinned a generation of minimum volatility strategies.
Below, Dr. Ang discusses what the new STOXX factor index family brings to the market.
Dr. Ang, congratulations on the launch of the iSTOXX Ang Research Enhanced Index suite. What were the key objectives behind this partnership, and what market need are you addressing with the new indices?
“The market need is efficient access to sources of return — factors — that are well studied in the academic and practitioner literature, while recognizing that factors are not equally rewarded at all times. We harvest well-known Quality, Value, and Momentum factors with traditional and new, proprietary methods, and implement them in a benchmark-aware way. We adjust factor exposures as their relative attractiveness varies across market conditions. In short, we identify attractive factor opportunities both in and through the cycle, and deliver those exposures with STOXX’s research and implementation capabilities.”
The indices focus on the Value, Quality and Momentum factors. Why were these signals selected, and what makes them particularly relevant today?
“Actually, a better question to ask is what factors we don’t include and why?
Value, Quality and Momentum have long histories. Value and Quality date back to Graham and Dodd in the 1930s in their famous book “Security Analysis” and Momentum was documented by academics in the 1960s and popularized in the 1990s. Value buys cheap stocks, Quality identifies companies with strong fundamentals, and Momentum holds companies with positive recent trends.
We do not include Size and Low Volatility because these factors have betas that are significantly different from 1. Size tends toward high betas and Low Volatility toward low betas. There’s a place for Size and Low Volatility, but for an index with an objective of low tracking error to the market, these betas can create unintended directional bets on top of factor exposures. Value, Quality and Momentum can be expressed in a beta-one, benchmark-aware way that closely tracks the market.”
The indices are designed to mitigate unintended factor exposures, control turnover and maintain benchmark-relative risk, while dynamically rotating between underlying factors. Why are these considerations important, and how do they help improve real-world investment outcomes?
“Each of these is a place of leakage. And speaking as someone who currently has a leak in our ceiling and wall, you don’t want leaks! You can potentially erode returns if you’re getting unrewarded exposures, pay high transactions costs, or make a wrong bet on the direction of the market. Robust construction with an optimizer helps minimize the leaks.
Your second question is why should we change exposures to these factors? Factors are cyclical. Value, Momentum and Quality have their own trends: they become expensive or cheap, and perform differently over different market regimes. We vary factor exposures with a market similarity model that finds the most similar market conditions to today, measures the attractiveness of Value and Momentum exposures, and overweights factors that have better recent risk-adjusted performance. A dynamic approach allows the indices to tilt toward factors that are more attractive at a given point in time.”
STOXX has offered multi-factor indices for over six years. How does this new suite complement the existing range, and what differentiates it from other factor-based solutions available to investors today?
“The iSTOXX Ang Research Enhanced Index family is designed to be complementary to the other STOXX factor indices. There are several points of differentiation.
First, the indices are designed to have low tracking error — they’re built for individuals who want core exposure.
Second, they use both traditional and new definitions of factors — for example, we treat cyclical Value (with traditional price-to-book and price-to-earnings) differently from enhanced Value (with economic value added and intangible assets).
Finally, the indices dynamically rotate across the factors. The differentiation is combining tight benchmark-relative risk, proprietary signal construction and rules-based factor rotation in a single transparent index.”
What made STOXX the right partner for these indices?
“Three things really matter in bringing this to market. The first is research depth — it’s not just about data, signal construction and infrastructure; it’s also about a great research team that can turn ideas into something investable. Second, STOXX’s implementation abilities are first-rate. Third, it’s also about the partnership with asset managers and advisors that can make the research come alive and make a difference for individuals’ financial well-being.”
You’ve led the work across quantitative investing research and applied it in areas ranging from low volatility to multi-asset and long/short strategies. Looking ahead, how do you see factor investing evolving?
“More dynamism, more customization.
The earlier generations of factor products, which is also true for most market exposure indices, is that they were largely static — rebalancing back to static targets. We now realize that factor performance varies over time. I think factor investing will become more dynamic, with greater attention to market conditions. We build that dynamism into our indices.
The second direction is customization. Investors are all different. Increasingly, the value will come not just from identifying factors, but from delivering them in a way that is aligned with each investor’s financial goals.”
What role do you think emerging technologies such as AI and machine learning will play in factor research, portfolio construction and index design?
“AI, machine learning and AI agents are already changing everything and index design is no different.
We already incorporate machine-learning methods into the index; our market similarity model upweights and downweights factor exposures by identifying the periods in the past that are most similar to today’s market conditions. It’s not a black box, but a disciplined tool that evaluates the current environment and adapts exposures systematically.
Looking ahead, we want to use AI to analyze broader datasets, and test and implement more complex relationships. Eventually, you might use agents to select the right tools to deliver unique indices to each individual. But what can’t be replaced are economic intuition and decades of out-of-sample evidence. You want to use machines to more precisely capture well-understood sources of returns and adapt them to market conditions. But the accountability for how an index performs still remains with us.”
The collaboration highlights STOXX’s approach to combining academic research with disciplined index construction to deliver next-generation factor strategies.
Editor’s note: SEI®, a global provider of financial technology, operations and asset-management services, has filed to launch the SEI Ang Research Enhanced U.S. Large Cap ETF, which tracks the iSTOXX® Ang Research Enhanced US Large Cap index.