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How to link assets to SGI indices?
Indices represent a set of rules and formulas that describe an investment
process. Investors may gain exposure to the performance of any SG index
through a wide range of wrappers with payoffs depending on their objectives and
constraints
SGI Indices
Structured Notes,
options
Certificates, swaps
ETFs
Linear payoffs
Open-end UCITS
III & contractual
Funds
Non linear payoffs
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Société Générale Index
A new universe of
investment opportunities
Focus on Emerging and Water indices
August 2009
May 2008
www.sgindex.com
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Société Générale Index in brief
Société Générale Index (SGI) is the index design platform of Société Générale Corporate & Investment Banking
SGI, part of the structured product department, aims to bringing innovation at the underlying level and provide
investors with alternatives to mainstream equity, bond and commodity indices.
The SGI range meets the market’s growing need for:
• Absolute performance, i.e. uncorrelated to market trends
• Optimising allocation via algorithmic models
• Anticipation of strong growth in niche sectors (e.g. alternative energies, frontier markets)
SGI’s range of indices are all investable and can easily be replicated by delta one wrappers such as trackers. They
are also well suited to more complex indexation through structured products or funds
The SGI range is organised around two main family of indices: the α-research range seeks to outperform
reference benchmarks, while the β-research range aims to reflect a new investment theme or grant access to new
markets or asset classes.
MODERN GREAT IN
EQUITY DERIVATIVES
EQUITY DERIVATIVES
HOUSE OF THE YEAR
BANK OF THE YEAR
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SGI platform
„
A range of proprietary indices developed by Societe Generale and calculated by
leading Index Houses
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Alpha-research range: a global coverage
Index
Benchmark
Advisor
Calculation
UNITED STATES
SGI WISE US Top
S&P 500
SG
S&P
SGI WISE US Long/Short
Long/Short Equity
SG
S&P
SGI Vol Premium US
Volatility arbitrage
SG
S&P
SGI Fed Model US
US Equities/bonds
SG
S&P
SGI Enhanced Buy Write US
S&P 500
SG
S&P
SGI WISE Long
DJ STOXX 600
SG
S&P
SGI WISE Long/Short
Long/Short Equity
SG
S&P
SGI WISE Nordics
Long/Short Equity
SG
S&P
SGI Vol Target BRIC
S&P BRIC 40
SG
S&P
SGI WISE Japan Long/Short
Long/short Equity
SG
Markit
SGI WISE Asia ex Japan L/S
FTSE AW AP ex Japan
SG
S&P
SGI SLS Emerging
Long/Short Equity
SG
Dow Jones
SGI WISE Emerging Shariah
DJ Islamic Emerging
SG
S&P
SGI Global Momentum
MSCI All Countries
SG
S&P
SGI Multi Asset Portfolio
Diversified allocation
SG
S&P
SGI Global Alpha
HFR Global FoF
SG
S&P
Euro MTS Global
SG
S&P
EUROPE
ASIA & EMERGING MARKETS
GLOBAL
BOND
SGI BOSS
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β-research range: environmental themes
Index
Theme
Advisor
Calculation
ENVIRONMENT
WOWAX
Water
SAM
Dow Jones
WAEX
Alternative Energy
SAM
Dow Jones
ERIX
Renewable Energy
SAM
STOXX
SOLEX
Solar Energy
SAM
Dow Jones
BIOX
Bio Energy
SAM
Dow Jones
TIMBEX
Timberland
Dow Jones
Dow Jones
URAX
Uranium
Dow Jones
Dow Jones
SGI Global Waste Management
Waste Management
SG
S&P
SGI Global Environment
Water, Renewable Energy and Recycling
SAM
S&P
SGI Global Carbon
Reduction of Co2 Emissions
Centre Info
S&P
SGI Innovex
Environmental Technologies
Innovest
S&P
SGI Orbeo Carbon Credit
Co2 credits prices
Orbeo
S&P
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β-research range: global growth and new
market accesses
Index
Theme
Advisor
Calculation
SGI Global Security
Security
SAM
Dow Jones
SGI Global Wealth
Wealth
SAM
Dow Jones
SGI Global Human Resources
Human Resources
SAM
STOXX
SGI Global Senior
Consumption of senior people
SAM
Dow Jones
SGI Global Generics
Generics pharmaceuticals
Dow Jones
Dow Jones
SGI Global Nanotechnology
Nanotechnologies
Dow Jones
Dow Jones
SGI Global Agriculture
Agriculture
SG
S&P
SGI Pan Africa
Pan Africa
SG
S&P
Dow Jones
Dow Jones
GLOBAL THEMES
ASSET CLASSES
PRIVEX
Private Equity
SGI Alternative Beta
Alternative Investment
SG
S&P
SGI Bond
Bonds
SG
S&P
SGI European Credit
Credit market
SG
S&P
SGI Europe Short Strategy
Selling European equity beta
Dow Jones
Dow Jones
SGI Short Brent
Selling exposure to the Oil Price
SG
S&P
Lyxor Hedge Indices
Investable hedge fund strategies
Lyxor AM
S&P
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Our partners
Partners
Index
composition
Index
calculation
Description
Dow Jones Indexes has specialised in calculating indexes
together with clients according to their individual
requirements, and supporting them during production with
Dow Jones Indexes’ own know-how and the necessary
infrastructure.
STOXX Limited is a joint venture between Deutsche Börse
(German Stock Exchange), Dow Jones and the SWX (Swiss
Stock Exchange). STOXX has specialised in calculating
indexes together with clients according to their individual
requirements,
SAM (Sustainable Asset Management) was established in
1995 as an independent asset management company
focusing on sustainability investment.
Founded in 1990, Centre Info is the first European
research and consultancy firm entirely devoted to
environmental, social and governance (ESG) issues.
Centre Info has created the EnvIMPACT carbon scoring
model.
S&P is renowned for its expertise in the creation and
management of global indices.
Standard & Poor’s” is a trademark of The McGraw-Hill
Companies, Inc.
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Beta research case study:
Investing in water with Wowax
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Rationale for water investing
US drought in 2009
„
Water scarcity is a key issue
As a result of global warming
Natural disasters
Urbanisation and industrialisation in
emerging economies, a crucial factor or
rising water demand
„ New investment initiatives
Water investment forecast
Public (and municipal) water
investments offsetting demand for soft
construction market
Growing needs in both developed and
emerging economies, beneficiaries
from recent fiscal stimulus packages.
Structural growth in private initiatives
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Index composition: pure players on the whole
scope of water activities
¾ By construction, WOWAX reflects an investment in
the whole range of water-linked equities including:
¾Water utilities
¾Water treatment
¾Water infrastructure
¾ Wowax then includes a blend of “defensive” stocks
that generate regular cash flow (utilities) and more
“cyclical” plays.
¾SAM, SG index advisor, makes sure that WOWAX
only includes “pure players”
18%
21%
45%
37%
4%
Europe
Americas
25%
Asia Pacific
Infrastructure
Treatment
Utilities
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What is WOWAX?
„ The WOWAX index consists of the 20 largest companies in the fields
of water utilities, water infrastructure and water treatment
„ All eligible stocks composing the index are selected with a minimum
market cap constraint.
„ An equally weighted exposure to each component of the index. All
stocks are given a 5% on every rebalancing date.
„ A selection performed by SAM, a well-known Asset Management and
Research company specialised in Socially Responsible Investment
(SRI)
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WOWAX return
„ Comparison with world index
Source: Bloomberg
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Alpha research case study:
The case for emerging markets with
SGI SLS index
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What is SGI Synthetic Long Short (SLS) index ?
„ Investment strategy: SGI SLS is a long short index, with three
principles at the heart of its investment policy
Emerging markets to outperform Developed markets over the long term as
economic growth differential between the two blocs persist
Systematic strategies do generate alpha
The risk is managed within the index
„ Long Emerging: The long leg of the index consists in SGI Wise
Emerging
A systematic strategy exploring investors bias
A stock selection system picking the top 50 stocks
„ Short Developed markets: The short leg is Dow Jones Global Titans
(Gross Return) Index
„ The Long Short index
A sector neutral strategy
A dynamic leverage policy allowing for managing the risk of the strategy
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Investment context: emerging economies are
growing faster
„ GDP growth
9
Advanced economies
Emerging and Developing economies
World
8
7
6
5
4
3
2
1
0
1980
1985
Source: IMF
1990
1995
2000
2005
2010
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Investment context: don’t overpay for growth
„ Price Earnings Ratio comparison: Emerging and Developed markets
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Emerging
World
17
13
9
5
Sep-02
Jun-03
Mar-04
Source: MSCI
Dec-04
Sep-05
Jun-06
Mar-07
Dec-07
Sep-08
Jun-09
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SGI Wise Emerging
„ Investment policy and index construction
Eligible universe: major emerging markets
Investment policy: Wise Asia criteria applied, i.e. a sophisticated stock
selection algorithm designed to identify out performers on a 12-month
horizon
Index construction: 50 best ranked stocks according to the Wise criteria
Annual rebalancing
Dow Jones as a calculation agent
Global tradable
emerging
universe
Approx.
1,100 stocks
Liquidity
filtering
WISE
scoring
Sector
neutralisation
Final
index
constituents
50 stocks
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Neutralisation of the sector risk premia
„
To avoid significant sector biases, the index algorithm includes a neutralisation of the net sector
exposure between the long and the short legs
The algorithm duplicates the weights of the DJ Global Titans by sectors, then equal weights the stocks within each sector
The sectors are predefined to represent all the universe of the DJ Global Titans with the constraints of the emerging zone
The number of stocks within each sector closely matches the one of the DJ Global Titans
Different econometric studies ( multivariate linear regressions) confirm the robustness of this neutralisation in beta
This makes it possible to reduce the exposure to directional moves of equity markets by lowering the beta of the index to the DJ
Global Titans
SGI WISE Emerging index TR
Due to the lack of healthcare
companies in the Emerging
universe that could match the
stock selection criteria, they are
substituted
by
industrial
companies
DJ Global Titans Index TR
16%
Consumer
17%
21%
Industrial
20%
19%
Energy
20%
14%
Technology
14%
9%
Telecom
9%
9%
21%
Financials
19%
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A risk control mechanism included in the index
„
The SGI SLS Emerging Index implements a dynamic leverage policy (i.e. a volatility target mechanism)
„
The objective is to enhance the return of the SGI SLS Emerging Index and control its volatility
„
To achieve this objective, the index sta allocates into the Long/Short strategy
The volatility target is set at 11%.
If this level exceeds (is below to) a predetermined threshold of 11%, the index reduces (raises) its allocation to the long/short
strategy (leveraged exposure up to 150%)
100%
45%
90%
40%
80%
35%
70%
30%
60%
25%
50%
20%
40%
15%
30%
10%
20%
5%
10%
0%
May-01
Exposure
Max
Max
Average
Average
Min
Min
Exposure
Exposure
94.16%
95.11%
60.11%
58.03%
41.03%
33.79%
Volatility
Exposure to the SGI SLS Emerging with 11% vol target
50%
0%
May-02
May-03
3-Month Volatility
May-04
May-05
May-06
May-07
Exposure to the risky asset
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SGI SLS three year return
„ A comparison with Emerging and Developed markets (MSCI)
Source: Bloomberg
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SGI SLS year-to-date return
„
Comparing SGISLS with Wise Emerging and Emerging Markets (MSCI)
Source: Bloomberg
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Key advantages of using the SG Index platform
„ Innovation: access to new market segments, hidden asset
classes, or advanced investment strategies through synthetic or
direct exposure
„ Liquidity: indices designed to be replicable through a wide range
of investment wrappers; rules include mechanism to minimise
turnover.
„ Transparency: Rules-based strategies, index rules summary
available on SG Index website as well as individual brochures,
historical prices and factsheet, detailed index rules and specific
research available on request.
„ Independance: a third-party calculation of the index level by a
leading provider (S&P, Dow Jones, STOXX, Markit)
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sgindex.com
„ Brochures
„ Factsheets
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