Index Linked Products
The Nikkei Stock Average (Nikkei Average/Nikkei 225) is not only a measure of stock market activities, it serves as an underlying asset for various financial products. Listing of the S&P500 index futures contract by Chicago Mercantile Exchange (CME) in 1982 opened the era of index-linked financial products and they are well accepted as investment tools among investors now.
As a part of such trend, the Nikkei 225 futures contract was listed in the Singapore International Monetary Exchange (currently, SGX) in September 1986, which was the first Asian stock index futures. Later in September 1988, it was listed in the Osaka Securities Exchange (Osaka Exchange), and in September 1990 trading started in CME. Recently in 2019, B3 exchange of Brazil added Nikkei 225 to the list of futures contracts. Nikkei 225 became the equity index, futures contract of which became listed in multiple exchanges in different regions of the world for the first time.
In the 80s, in addition to exchange traded futures contract, mutual fund tracking the indices (index funds) and OTC derivatives such as warrants, or linked bonds were introduced to the market.
The Exchange Traded Fund (ETF), popular investment vehicle among individual investors became available in Japan first in July 2001. Asset managers created and listed Nikkei 225 ETFs one after another. By the addition of the “iFreeETF Nikkei 225 (quarterly settlement)” of Daiwa Asset Management in November 2020, the number of domestic Nikkei 225 ETFs reached 10 and their total asset under management is more than 16 trillion yen as of this writing. Currently Nikkei 225 ETFs are popular not only in Japan but in other countries such as Germany, U.K., Israel, and China as a proxy to invest in the Japanese equity market.
In response to the surge of the investors’ demand, Nikkei introduced various Nikkei 225 “family” of indices. Family indices include ones which follow specific trading strategy such as “Nikkei 225 Leveraged Index” yielding 2x return and Nikkei 225 Inverse Index providing inverted return of the Nikkei 225. They are grouped as “Strategy Index Series”. The ETFs following these strategies took root among individual investors as valuable investment tools.
