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STOXX Limited, a leading provider of innovative, tradable and global index concepts, today introduced the STOXX Japan Strong Balance Sheet Indices, which select stocks according to their Altman Z-Score, a quantitative measure for the financial and fundamental health of a company. The new indices are designed to act as an underlying for exchange-traded products (ETPs) and other investable products, as well as benchmarks for actively managed funds. Furthermore, they can be replicated passively.
The STOXX Japan Strong Balance Sheet Indices are the first indices to use the Altman Z-Score as a selection criteria for an index concept in the Japanese region.
“The Altman Z-Score is an established mathematical measure to determine a company’s financial health. Research has shown that high Altman Z-Scores can serve both as indicator of downturn resilience as well as of outperformance within a market overall,” said Hartmut Graf, chief executive officer, STOXX Limited. “The launch of the STOXX Japan Strong Balance Sheet Indices marks the first time that an index concept for the Japanese market is based on component selection according to the Altman Z-Score. Market participants are now able to participate from the benefits of this investment strategy through an innovative and rules-based STOXX index.”
The Altman Z-Score was developed in the 1960s by New York University Professor Edward I. Altman, and acts as a measure to gauge a company’s probability to file for bankruptcy. The lower a company’s Z-Score, the more likely it is to default within the next two years. A score of three and more is considered a “safe zone”. The Altman Z-Score is calculated using publicly available company fundamental ratios, namely working capital over total asset, retained earnings over total assets, EBIT over total assets, market value equity over total liabilities and sales over total assets.
The index universe for the STOXX Japan Strong Balance Sheet Indices is all Japanese stocks in the STOXX Global 1800 Index. Financial companies are excluded due to the flexibility they have with their accounting methods, state ownership and “too big to fail” commitments from governments. To be eligible for inclusion in the STOXX Japan Strong Balance Sheet Indices, companies must have a three-year track record of Z-Scores of a minimum of 3.5, as well as a minimum liquidity of 300 million Japanese yen. All companies that pass these screens are included in the indices, and are either weighted by market cap or equally.
The STOXX Japan Strong Balance Sheet Indices are available in free float market cap and equal weighted versions. Components are subject to a 10% weighting cap. The indices are reviewed annually in September and rebalanced on a quarterly basis. The STOXX Japan Strong Balance Sheet Indices are calculated in price, net and gross return versions, and are available in Japanese yen, US dollar and euro. Daily historical data is available back to Sept. 24, 2007.
The newly launched indices are part of the STOXX Strong Balance Sheet Index Family. Further indices which cover the US, Europe and global markets are also available as of today.
For further information, please visit www.stoxx.com.
