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Interview with Matteo Andreetto: “Cooperation is inevitable”

12 Mar 2018

Interview with Matteo Andreetto: “Cooperation is inevitable”Gaining in existing markets a challenge – innovation crucial – AI offers better risk-return profile

Today, the traditional index business only offers limited growth opportunities. In an environment like this innovation is crucial, according to Matteo Andreetto. The CEO of STOXX, Deutsche Börse Group’s index operator, is banking on artificial intelligence, among other things.

Mr Andreetto, the index business is highly competitive. How do you manage to stand out against competitors?

Matteo Andreetto, Chief Executive Officer, STOXX Limited

The key is user experience. Our offering takes into account a variety of customer needs and covers them using targeted product lines – from quality benchmarks, through customised indices (iSTOXX) to white-label solutions.

Our competitors don’t offer product ranges that are as comprehensive and that cover the entire value chain. Apple’s famous claim “think different” is a perfect reflection of our approach and our core values. Quality and innovation are what we do and what drives us; our mission is to be different and to improve the world of investing – as we did 20 years ago with the introduction of EURO STOXX 50.

What about your artificial intelligence index?

Our recently launched artificial intelligence-based index is part of our unique selling proposition. Still, gaining in existing markets is indeed a challenge. At the geographical level, the pie has largely been divided up. The S&P 500, EURO STOXX 50 and FTSE 100 indices dominate in the US, the eurozone and the UK, respectively. In this context, you can either go for an acquisition or modernise your indices, as we are currently considering for the DAX index family.

Factor indices have been one of the major trends of the past years. What opportunities do they hold for an index operator?

Innovation is just as crucial in this segment. In principle, they are essentially about five to six factors such as value, growth, or volatility, which have become generally established. Within this universe, however, there is room for innovative approaches to differentiate yourself from other index providers and to offer more. We are fortunate to be part of a stock exchange group. It allows us to provide, for example, liquid hedging tools for our indices. Futures on our factor indices are tradeable at Eurex. Hedge funds, asset managers and ETF issuers can use them to manage products or implement tactical investment decisions.

How have these contracts been accepted by market participants?

Volumes are growing strongly. But our objective goes beyond that. We want to see investors turning to our index concepts, i.e. investing real money in them. In January, for example, Amundi launched a multi-factor ETF based on our indices, which collected assets under management of €300 million within just a few weeks. That is a great success.

Which big trends characterise the industry?

We have noticed that asset management is undergoing a profound transformation. Active and passive managers are responding to the strong growth of available data and have started using more data. Usage is growing explosively. We as index operators are also using more and more data, and we want to turn big data into smart data. The third major user group, which incidentally plays a pioneering role in this regard, are quant funds.

How do you deal with this trend strategically?

Index operators need to consider whether to opt for an open data architecture or use only their own data. Two years ago, we chose to go with an open architecture. Data is available everywhere, its amount doubles every year. By 2030, there will be more sensors than humans in the world. Given that, we consider it important to work with all usable data. We pay attention to availability, reliability, robustness and quality. Add to this flexible IT capabilities and cooperation with partners. We could analyse the data on our own, but taking into account the sheer volume, cooperation is virtually inevitable. Our approach has a big impact on the way we design indices. It also helps us distinguish ourselves from competitors who have decided against an open architecture.

Which partners do you work with?

Among others, we work with clients and universities to create an intelligent investment ecosystem. We launched our artificial intelligence-based index, the STOXX AI Global Artificial Intelligence Index, in collaboration with Silicon Valley company Yewno. We use its technology to evaluate companies’ AI-related patents and intellectual property. Coming up, we will add more partners on the input side.

What are the megatrends you focus on when creating new indices?

The investment sector is dominated by three major megatrends. One of them is new technologies. In addition to artificial intelligence, which was mentioned already, these include robotics, big data or even autonomous driving. Furthermore, demographic change is a big trend: topics include consumers in emerging countries and an aging population. Third, climate change is playing an increasingly important role with issues such as water scarcity. Capturing these topics is becoming more and more data-driven. The more data one has, the better one can grasp these megatopics and generate smart beta, which is an important factor in ensuring our competitiveness. As a result, we have a family of thematic indices for which we have issued licences. One ETF based on our thematic robotics index raised more than €1 billion in just one year.

How does the STOXX AI Global Artificial Intelligence Index work?

The results are quite impressive. Artificial intelligence can do much in data analysis and evaluation that humans cannot achieve. This is why we have two indices that represent the AI trend. In one of them, people choose companies that generate a significant portion of their revenue in artificial intelligence products. For the other one, artificial intelligence selects companies based on their patent filings. The difference between the two indices is very interesting. While the man-made index contains only 30 technology stocks, AI has chosen about 200 index constituents, as it also takes into account companies that use artificial intelligence to optimise their own cost structures: an aspect not captured by a revenue-based process. The man-made index has a Sharpe ratio of 1.46, the AI-based one of 1.56, meaning that the latter index offers a better risk-return profile.

Interview: Christopher Kalbhenn

This article was first published in the Börsen-Zeitung (in German) on 10 March 2018.

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