S&P/BOVESPA Momentum Index Methodology

Transcription

1 S&P/BOVESPA Momentum Index Methodology S&P Dow Jones Indices: Index Methodology October 2015

2 Table of Contents Introduction 3 Highlights 3 Index Construction 4 Index Universe 4 Constituent Selection 4 Index Maintenance 6 Index Calculations 6 Rebalancing 6 Additions and Deletions 6 Corporate Actions 7 Currency of Calculation 7 Exchange Rate 7 Investable Weight Factor (IWF) 8 Other Adjustments 8 Base Date and History Availability 8 Index Data 9 Total Return and Net Return Indices 9 Index Governance 10 Index Committee 10 Index Policy 11 Announcements 11 Pro-forma Files 11 Holiday Schedule 11 Unscheduled Market Closures 12 Recalculation Policy 12 S&P Dow Jones Indices: S&P/BOVESPA Momentum Index Methodology 1

3 Index Dissemination 13 Tickers 13 FTP 13 Web site 13 Appendix A 14 Momentum Value Calculation 14 Appendix B 15 Z-Score & Momentum Score Computation 15 Appendix C 16 Methodology Changes 16 S&P Dow Jones Indices Contact Information 18 Index Management 18 Product Management 18 Media Relations 18 Client Services 18 Disclaimer 19 S&P Dow Jones Indices: S&P/BOVESPA Momentum Index Methodology 2

4 Introduction Highlights The S&P/BOVESPA Momentum Index is designed to measure the performance of securities in the Brazilian equity market that exhibit persistence in their relative performance. Numerous academic and practitioners research has shown that relative strength strategies that rank stocks based on their past returns predict relative performance over the next 3-12 months. The S&P/BOVESPA Momentum Index is constructed from the constituents of the S&P Brazil BMI that are actively traded on the BM&FBOVESPA. The S&P Brazil BMI is a subset of the S&P Global BMI, a comprehensive, rules-based global index that covers all publicly listed equities with a minimum float-adjusted market cap of US$ 100 million and a minimum annual dollar value traded of US$ 50 million from each of its included countries. Please refer to the S&P Global BMI Methodology document for further information on the S&P Brazil BMI. This methodology was created by S&P Dow Jones Indices in agreement with BM&FBOVESPA to achieve the aforementioned objective of measuring the underlying interest of each index governed by this methodology document. Any changes to or deviations from this methodology are made in the sole judgment and discretion of S&P Dow Jones Indices and BM&FBOVESPA so that the index continues to achieve its objective. S&P Dow Jones Indices: S&P/BOVESPA Momentum Index Methodology 3

5 Index Construction Index Universe For a security to be eligible for consideration for the S&P/BOVESPA Momentum Index, it must, on the rebalancing reference date: Be actively trading on the BM&FBOVESPA as a local listing; Be an existing member of the S&P Brazil BMI; Have a minimum six-month median daily value traded of BRL 5 million with a buffer of BRL 4 million for current constituents. Have a minimum median value traded ratio of 2% with a buffer of 1.5% for current constituents for each of the prior 12 months. The median value traded ratio of each stock is defined as follows: o The monthly value traded ratio is calculated for each of the prior 12 months, by taking the median monthly daily value traded divided by its respective end of month float-adjusted market capitalization, where each month s value traded ratio must be at least 2% for non-constituents and 1.5% for current constituents. o Companies with less than 12 months of trading history will be considered as long as they have a trading history of at least six months and meet all other eligibility criteria. In addition the following are not eligible for index consideration: Brazilian Depository Receipts (BDRs); Companies not in compliance with resolution as established by the Conselho Monetário Nacional (National Monetary Council). Constituent Selection The top 25% of securities in the eligible universe, based on momentum scores, are chosen, subject to a minimum count of 25 stocks. The momentum score of each stock is updated semi-annually at the March and September index rebalancings. Please refer to Appendix B for details of the momentum score computation. Buffer Rule. In order to reduce turnover, a 25% buffer rule based on the winsorized z- score is applied to the security selection at each rebalancing and is implemented as follows: S&P Dow Jones Indices: S&P/BOVESPA Momentum Index Methodology 4

6 1. Stocks are ranked based on momentum score and those ranked within the top 20% of the eligible universe stock count are automatically chosen for index inclusion. 2. All stocks which are current constituents that fall within the top 30% of the eligible universe stock count are then chosen for index inclusion in order of their momentum score. 3. If at this point the minimum stock count or 25% of the stocks in the eligible universe have not been chosen, the remaining stocks are chosen based on their momentum score. S&P Dow Jones Indices believes turnover in index membership should be avoided when possible. At times a company may appear to temporarily violate one or more of the addition criteria. However, the addition criteria are for addition to the index, not for continued membership. As a result, an index constituent that appears to violate criteria for addition to the index may not be deleted unless ongoing conditions warrant an index change. Momentum Weights Computation. For a given rebalancing date, all the securities eligible for inclusion in the S&P/BOVESPA Momentum Index are weighted by the product of their market capitalization in the index universe and their momentum score, subject to security constraints. The maximum weight of each security is the lesser of 9% and three times its market capitalization in the index universe. Float Adjustment. Investable Weight Factors (IWFs), which define the available float for each stock, are reviewed annually. The float-adjusted shares are used in the calculation of each stock s momentum weight. Please refer to the S&P Dow Jones Float Adjustment Methodology for a detailed description of float adjustment and Investable Weight Factor (IWF). S&P Dow Jones Indices: S&P/BOVESPA Momentum Index Methodology 5

7 Index Maintenance Index Calculations The index is calculated using the divisor methodology used in all S&P Dow Jones Indices equity indices. Index calculations include price, total and net return series. The index is calculated using S&P Dow Jones Indices modified market cap weighted methodology. A modified market cap weighted index is one where index constituents have a user-defined index weight. Each stock s weight is based on its momentum score which can be capped as defined in Index Construction. Between semi-annual rebalancings, corporate actions generally have no effect on index weights. As stock prices move, the weights shift and the modified weights change. Please refer to S&P Dow Jones Indices Index Mathematics Methodology for further details on the modified market cap methodology. Gross dividends are tabulated daily and included in the total return calculations on their ex-dates. When local market dividend announcement practices make ex-dates unavailable, dividend inclusion follows the local market practice. Gross dividends are reinvested on the ex-dividend date to calculate gross total returns, with alternative compounding periodicities available on a customized basis. Returns-of-capital are treated as capital distributions and the index divisor is adjusted on the event ex-date. For spin-offs that include a cash distribution, the cash distribution is treated as a return-of-capital on the ex-date. Rebalancing The S&P/BOVESPA Momentum Index is rebalanced semi-annually after the close on the third Friday of March and September. As part of the rebalancing process, constituent stock weights are updated. The rebalancing reference dates are the last business day of February and August, respectively. Weights calculated as a result of the reference date data are implemented in the index using closing prices as of the last business day of February and August. Additions and Deletions The majority of additions and deletions occur as part of the semi-annual index rebalancings in March and September. Since the index does not have a fixed number of constituents, additions to and deletions from the index may not be the same number. S&P Dow Jones Indices: S&P/BOVESPA Momentum Index Methodology 6

8 Initial Public Offerings (IPOs). IPO additions to the index take place at the semiannual rebalancings. To be considered eligible for index inclusion, an IPO must be a constituent of the index universe. Corporate Actions Corporate Action Spin-off Rights Offering Stock Split Share Issuance or Share Repurchase Special Dividends Delisting, acquisition or any other corporate action resulting in the deletion of the stock from the index universe. Divisor Adjustment Made to the Index Adjustment? Please refer to the Treatment of Spin-offs in the S&P Dow Jones Indices Equity Indices Policies & Practices document located on our Web site, The price is adjusted to the Price of the No Parent Company minus (the Price of the Rights Offering/Rights Ratio). Index shares change so that the company s weight remains the same as its weight before the rights offering. Index shares are multiplied by and the No price is divided by the split factor. None. Actual shares outstanding of the No company play no role in the daily index calculation. The price of the stock making the special Yes dividend payment is reduced by the per share special dividend amount after the close of trading on the day before the dividend ex-date. The stock is dropped from the index. This Yes causes the weights of the rest of the stocks in the index to change proportionately. Additions are made to the index only at the time of the semiannual rebalancings. For more information, please refer to S&P Dow Jones Indices Equity Indices Policies & Practices document located on our Web site, Currency of Calculation The index is calculated in Brazilian reals and U.S. dollars. Exchange Rate WM/Reuters foreign exchange rates are taken daily at 04:00 PM London time and used in the calculation of the index. These mid-market fixings are calculated by the WM Company based on Reuters' data and appear on Reuters pages WMRA. S&P Dow Jones Indices: S&P/BOVESPA Momentum Index Methodology 7

9 Investable Weight Factor (IWF) All issues in the S&P/BOVESPA Momentum Index are assigned a float factor, called an Investable Weight Factor (IWF). The IWF ranges between 0 and 1 and is an adjustment factor that accounts for the publicly available shares of a company. Please refer to S&P Dow Jones Indices Float Adjustment Methodology for details. Other Adjustments In cases where there is no achievable market price for a stock being deleted, it can be removed at a zero or minimal price at the Index Committee s discretion, in recognition of the constraints faced by investors in trading bankrupt or suspended stocks. Base Date and History Availability Index history availability, base date and base value are shown in the table below. Launch First Value Base Index Date Date Base Date Value S&P/BOVESPA Momentum Index 04/30/ /30/ /30/ S&P Dow Jones Indices: S&P/BOVESPA Momentum Index Methodology 8

10 Index Data Total Return and Net Return Indices Gross and net total return indices are calculated for the S&P/BOVESPA Momentum Index. Cash dividends are applied on the ex-date of the dividend. Net return indices reflect the return to an investor where dividends are reinvested after the deduction of a withholding tax. The tax rate applied is the rate to non-resident institutions that do not benefit from double taxation treaties. Data on tax rates are sourced primarily from information provided by stock exchanges in S&P Dow Jones Indices Global Survey of Stock Exchanges and local correspondents and are verified with other independent data sources, including the Worldwide Corporate Tax Guide published annually by Ernst & Young. For more information on the tax rates used in the calculation of net return indices, please refer to S&P Dow Jones Indices Equity Indices Policies & Practices document located on our Web site, Please refer to S&P Dow Jones Indices Index Mathematics Methodology for more detail on total and net return index calculations. S&P Dow Jones Indices: S&P/BOVESPA Momentum Index Methodology 9

11 Index Governance Index Committee The index is maintained by the S&P/BOVESPA Index Committee. The Index Committee meets regularly. All committee members are full-time professional members of S&P Dow Jones Indices and BM&FBOVESPA s staff. At each meeting, the Index Committee reviews pending corporate actions that may affect index constituents, statistics comparing the composition of the index to the market, companies that are being considered as candidates for addition to the index, and any significant market events. In addition, the Index Committee may revise index policy covering rules for selecting companies, treatment of dividends, share counts or other matters. S&P Dow Jones Indices considers information about changes to its indices and related matters to be potentially market moving and material. Therefore, all Index Committee discussions are confidential. For information on Quality Assurance and Internal Reviews of Methodology, please refer to S&P Dow Jones Indices Equity Indices Policies & Practices document located on our Web site, S&P Dow Jones Indices: S&P/BOVESPA Momentum Index Methodology 10

12 Index Policy Announcements All index constituents are evaluated daily for data needed to calculate index levels and returns. All events affecting the daily index calculation are typically announced up to 30 days in advance via the Index Corporate Events report (.SDE), delivered daily via ftp to all clients. Any unusual treatment of a corporate action or short notice of an event may be communicated via to clients. Index methodology is constantly under review for best practices, and any changes are announced well ahead of time via the Web site and to all clients. For more information on S&P Dow Jones Indices announcements, please refer to the Announcement Policy located on our Web site, Pro-forma Files In addition to the corporate events file (.SDE), S&P Dow Jones Indices provides constituent pro-forma files each time the index rebalances. The pro-forma file is typically provided daily five business days in advance of the rebalancing date and contains all constituents and their corresponding weights and index shares effective for the upcoming rebalancing. Since index shares are assigned based on prices at the month end prior to the rebalancing, the actual weight of each stock at the rebalancing differs from these weights due to market movements. Please visit for a complete schedule of rebalancing timelines and proforma delivery times. Holiday Schedule The S&P/BOVESPA Momentum Index is calculated daily when the Brazilian equity markets are open. A complete holiday schedule for the year is available at S&P Dow Jones Indices: S&P/BOVESPA Momentum Index Methodology 11

13 Unscheduled Market Closures In situations where an exchange is forced to close early due to unforeseen events, such as computer or electric power failures, weather conditions or other events, S&P Dow Jones Indices will calculate the closing price of the index based on (1) the closing prices published by the exchange, or (2) if no closing price is available, the last regular trade reported for each security before the exchange closed. If an exchange fails to open due to unforeseen circumstances, S&P Dow Jones Indices treats this closure as a standard market holiday. The index will use the prior day s closing prices and shifts any corporate actions to the following business day. If all exchanges fail to open or in other extreme circumstances, S&P Dow Jones Indices may determine not to publish the index for that day. For further information on Unexpected Exchange Closures, please refer to S&P Dow Jones Indices Equity Indices Policies & Practices document located on our Web site, Recalculation Policy S&P Dow Jones Indices reserves the right to recalculate an index under certain limited circumstances. S&P Dow Jones Indices may choose to recalculate and republish an index if it is found to be incorrect or inconsistent within two trading days of the publication of the index level in question for one of the following reasons: 1. Incorrect or revised closing price 2. Missed corporate event 3. Late announcement of a corporate event 4. Incorrect application of corporate action or index methodology Any other restatement or recalculation of an index is only done under extraordinary circumstances to reduce or avoid possible market impact or disruption as solely determined by the Index Committee. For more information on the recalculation policy please refer to S&P Dow Jones Indices Equity Indices Policies & Practices document located on our Web site, For information on Calculations and Pricing Disruptions, Expert Judgment and Data Hierarchy, please refer to S&P Dow Jones Indices Equity Indices Policies & Practices document located on our Web site, S&P Dow Jones Indices: S&P/BOVESPA Momentum Index Methodology 12

14 Index Dissemination Index levels are available through S&P Dow Jones Indices Web site at major quote vendors (see codes below), numerous investment-oriented Web sites, and various print and electronic media. Tickers Index Return Type Bloomberg S&P/BOVESPA Momentum Index (USD) Price Return SPBRMUP Total Return SPBRMUT Net Total Return SPBRMUN S&P/BOVESPA Momentum Index (BRL) Price Return SPBRMBP Total Return SPBRMBT Net Total Return SPBRMBN FTP Daily stock level and index data are available via FTP subscription. For product information, please contact S&P Dow Jones Indices, Web site For further information, please refer to S&P Dow Jones Indices Web site at S&P Dow Jones Indices: S&P/BOVESPA Momentum Index Methodology 13

15 Appendix A Momentum Value Calculation Momentum value is calculated for each of the securities in the index universe on each of the rebalancing reference dates. The momentum value is determined as follows: 1. The momentum value is computed as the 12-month price change, excluding the most recent month of the security in local currency. If 12 months of price history is not available, momentum value is calculated from nine months of price history. The effective rebalancing month is stated as month (M). price a. Momentum Value = M 2 1 pricem 14 price b. Or, Momentum Value = M 2 1 pricem 11 price history is not available. if 12 months of NOTE 1: For example, if the effective rebalancing date is on 03/24/2014, the reference date is 02/28/2014, and the momentum value will be calculated based on the prices from 01/31/2014 (price M-2 ) and 01/31/2013 (price M-14 ). NOTE 2: If there is no price available on day M-2 or day M-14, the price from the day prior will be used. If there is no price available on any of the ten days prior, the momentum value will be calculated using formula (b) above. If the same condition exists for formula (b), the stock is excluded from the index. NOTE 3: For a stock to be included in the index, it must be trading for at least ten months prior to the rebalancing reference date. 2. The momentum value is further adjusted by the security s volatility to arrive at risk-adjusted momentum value. where: Risk-Adjusted Momentum Value = MomentumValue i σ σ = Standard deviation of daily price returns for the same date period used in Step 1 above. i S&P Dow Jones Indices: S&P/BOVESPA Momentum Index Methodology 14

16 Appendix B Z-Score & Momentum Score Computation Z-Score Computation. Computing a z-score is a widely adopted method of standardizing a variable. The z-score for risk-adjusted momentum value for each security is calculated using the mean and standard deviation of the relevant variable within the index universe. The z-score is calculated as follows: where: z α = (x α μ α ) σ α z α = Z-score for a given security x α = Observed value for a given security μ α = Arithmetic mean of the winsorized variable in the index universe, excluding any missing values σ α = Standard deviation of the winsorized variable in the index universe Winsorization reduces the impact of outliers on a data set by limiting them to a designated value or score. For the S&P/BOVESPA Momentum Index, the winsorized z- score of a security is capped at ± 3. Momentum Score Computation. Using the winsorized z-scores, a momentum score is computed for each of the securities. For a given security, if its winsorized z-score is above 0, then its momentum score will be the addition of 1 and the z-score. On the other hand, if its winsorized z-score is below 0, then its momentum score will be the result of the reciprocal of 1 subtracted from its z-score. If Z > 0, Momentum Score = 1 + Z If Z < 0, Momentum Score = (1 / (1 Z)) If Z = 0, Momentum Score = 1 S&P Dow Jones Indices: S&P/BOVESPA Momentum Index Methodology 15

17 Appendix C Methodology Changes Methodology changes since January 1, 2015 are as follows: Effective Date Methodology Change (After Close) Previous Updated Corporate Actions: Spin-offs Index Universe: Liquidity 09/30/15 Spin-offs are ineligible for inclusion in the index. Any price adjustments that occur due to a spin-off are a market cap neutral event for the parent stock. 09/18/15 For index eligibility, a security must, on the rebalancing reference date, have a minimum three-month average daily value traded of BRL 2 million. Spin-offs are ineligible for inclusion in the indices. When the price of the spin-off is not known, the spun-off company is added to the index at a zero price. Once it trades, it is dropped from the index. For further information, please refer to the Treatment of Spin-offs in the S&P Dow Jones Indices Equity Indices Policies & Practices document located on our Web site, For index eligibility, a security must, on the rebalancing reference date have: A minimum six-month median daily value traded of BRL 5 million with a buffer of BRL 4 million for current constituents. A minimum median value traded ratio of 2% with a buffer of 1.5% for current constituents for each of the prior 12 months. The median value traded ratio of each stock is defined as follows: o The monthly value traded ratio is calculated for each of the prior 12 months, by taking the median monthly daily value traded divided by its respective end of month float-adjusted market capitalization, where each month s value traded ratio must be at least 2% for nonconstituents and 1.5% for current constituents. o Companies with less than 12 months of trading history will be considered as long as they have a trading history of at least six months and meet all other eligibility criteria. S&P Dow Jones Indices: S&P/BOVESPA Momentum Index Methodology 16

18 Effective Date Methodology Change (After Close) Previous Updated Constituent Selection: Minimum Stock Count Constituent Selection: Buffer Rule Index Universe: Additional Exclusion Rules 09/18/15 The top 20% of securities in the eligible universe, based on momentum scores, are chosen, subject to a minimum count of 20 stocks. 09/18/15 A 20% buffer based on the winsorized z-score is applied to the security selection: 1. Stocks ranked within the top 16% of the eligible universe stock count, based on momentum score, are automatically selected. 2. All current constituents that fall within the top 24% of the eligible universe stock count are then selected in order of their momentum score. 3. If at this point the minimum stock count or 20% of the stocks in the eligible universe have not been chosen, the remaining stocks are chosen based on their momentum score. The top 25% of securities in the eligible universe, based on momentum scores, are chosen, subject to a minimum count of 25 stocks. A 25% buffer based on the winsorized z-score is applied to the security selection: 1. Stocks ranked within the top 20% of the eligible universe stock count, based on momentum score, are automatically selected. 2. All current constituents that fall within the top 30% of the eligible universe stock count are then selected in order of their momentum score. 3. If at this point the minimum stock count or 25% of the stocks in the eligible universe have not been chosen, the remaining stocks are chosen based on their momentum score. 06/19/15 -- In addition, the following are not eligible for index consideration: Brazilian Depository Receipts (BDRs); Companies not in compliance with resolution as established by the Conselho Monetário Nacional (National Monetary Council). S&P Dow Jones Indices: S&P/BOVESPA Momentum Index Methodology 17

19 S&P Dow Jones Indices Contact Information Index Management David M. Blitzer, Ph.D. Managing Director & Chairman of the Index Committee Stephen Banks Associate Director Product Management Alka Banerjee Managing Director, Global Equity Indices Media Relations David Guarino Communications Client Services Beijing Dubai Hong Kong London New York or Sydney Tokyo S&P Dow Jones Indices: S&P/BOVESPA Momentum Index Methodology 18

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