Borsa İstanbul starts calculating Risk Control Indices

Borsa İstanbul started calculating Risk Control Indices on May 21, 2014. A risk control index aims to control volatility of the equity index and gives investors a simple and straightforward tool against high volatility.

Borsa İstanbul started calculating Risk Control Indices on May 21, 2014 where the index aims to control volatility of the equity index and gives investors a simple and straightforward tool against high volatility.

An ideal control tool for Investors at times of High Volatility

Risk control indices offer the ideal instrument for investors looking to reduce volatility without sacrificing the advantage of diversification while investing in index portfolio during high volatility periods.

Through investing in different asset classes, it is possible to achieve a better portfolio diversification.  This is the basic principle in constructing risk control indices. Accordingly, BIST Risk Control Indices are composed of two asset classes: an equity index such as BIST 30 or BIST 100, and a money market instrument, e.g. BIST Repo Index. Weight of the equity index in the portfolio is rebalanced daily so that volatility does not deviate from the target volatility.

Weight of the equity index decreases during high volatility periods so that investors are protected against the price decreases stemming from high volatility. At times of low volatility, on the other hand, a maximum leverage ratio of 150% is allowed in BIST Risk Control Indices in order to take advantage of the potential return of equity index.

Two types of BIST Risk Control Indices are calculated

BIST Risk Control Indices are calculated for the target risk levels of 10%, 15%, %20, %25 and %30 for BIST 30 and BIST 100 indices. Furthermore, two types of indices are calculated, namely, Return and Total Return.

While Return index series reflect the daily return of the underlying index proportional to their weight in the index portfolio, Total Return index series reflect the daily return of both the underlying index and repo. Investors can select and monitor the relevant risk control index based on their own investment strategy and risk perception.

Due to their limited volatility features, it will be possible to issue more cost effective derivative products on risk control indices, and such indices may be used as underlying indices particularly with principal protected and guaranteed return funds.

Detailed information on BIST Risk Control Indices is available at Borsa İstanbul web site www.borsaistanbul.com/en/indices/bist-risk-control-indices.