Guide to Calculation FTSE Global Equity Index Series v3.0

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1 Guide to Calculatio FTSE Global Equity Idex Series v3.0 ftserussell.com October 2015

2 Cotets 1.0 Purpose of the guide Defiitio of terms Capital retur idexes Total retur idexes Divided yield Free float ad ivestable weightig FTSE Global equity idex series algorithms FTSE currecy hedgig algorithms Appedix A: Stocks tradig o a o-domestic exchage Appedix B: Further iformatio FTSE Russell FTSE Russell is a tradig ame of Frak Russell Compay (FRC), FTSE Iteratioal Limited (FTSE) ad FTSE TMX Global Debt Capital Markets, Ic. (FTSE TMX). FRC, FTSE ad FTSE TMX are each bechmark admiistrators of idexes. Refereces to FTSE Russell should be iterpreted as a referece to the relevat bechmark admiistrator for the relevat idex. FTSE Russell Guide to Calculatio FTSE Global Equity Idex Series, v3.0, October of 18

3 Sectio 1 Purpose of the guide 1.0 Purpose of the guide The aims of the guide are: A. to describe how the idexes are calculated; B. to facilitate users replicatio of the idexes i order to support their ivestmet ad tradig activities; C. to assist users i uderstadig the factors which ifluece the performace of the idexes. FTSE Russell Guide to Calculatio FTSE Global Equity Idex Series, v3.0, October of 18

4 Sectio 2 Defiitio of terms 2.0 Defiitio of terms Throughout this guide, the followig terms are used. Subscripts i,j,k ad t refer to idividual securities, coutries, regios ad time respectively. : The umber of idex costituets p i,t : The price of stock i i local currecy o day t * p i,t : The price of stock i at t-1 i local currecy adjusted for corporate actios effective o day t d i,t : Divided per share of stock i i local currecy o day t T it : Net of tax divided adjustmet for stock i o day t 12 d i,t : 12 moth trailig divided per share of stock i o day t dddd ii,tt : 12 moth trailig divided yield of stock i o day t s i,t : Shares i issue of stock i o day t r i,t : Restricted shares i issue of stock i o day t r i,t : No-restricted shares i issue of stock i o day t f i,t : Free float percetage of ordiary shares i issue of stock i o day t * f i,t : Free float percetage of ordiary shares i issue after the applicatio of buffers of stock i o day t for i,t : Foreig owership restrictio applicable to stock i o day t iw i,t : Ivestable weight of stock i o day t e i,t : WM/Reuters 4pm Lodo time exchage rate applicable to security i o day t e i,t-1 : WM/Reuters 4pm Lodo time exchage rate applicable to security i o day t-1. TRI t : Total retur idex of idex o day t TRI t-1 : Total retur idex of idex o day t-1 CI t : Capital retur idex o day t CI t-1 : Capital retur idex o day t-1 M t : Aggregate idex market value o day t M t * : Aggregate idex market value o day t-1 adjusted for corporate actios effective o day t D t : Aggregate or idex level divided o day t XD t : Aggregate or idex level ex divided adjustmet i idex poits o day t: XD t =D t /( M t * CI t-1 ) DY t : 12 moth trailig idex level divided yield o day t FTSE Russell Guide to Calculatio FTSE Global Equity Idex Series, v3.0, October of 18

5 Sectio 3 Capital retur idexes 3.0 Capital retur idexes 3.1 The FTSE Global Equity Idex Series is arithmetic weighted idex series where the weights are the free float market capitalisatio of each costituet compay. The free float market capitalisatio of each costituet compay cosists of shares-i-issue multiplied by the share price multiplied by a free float factor (ad ay applicable foreig owership restrictio). The price idex is the summatio of the free float adjusted market value (or capitalisatio) of all compaies withi the idex divided by the divisor (see 3.2). A give percetage price chage will, therefore, have a larger effect o the idex for a larger compay tha a smaller oe. 3.2 Divisor Adjustmet The idex value is a umber relatig the total market value of all compaies withi the idex at a particular poit i time to the total market value of the idex costituets at the idex start or base date. The daily idex value is calculated by dividig the total market value of all costituet compaies by the divisor. The divisor is a arbitrary umber chose to fix the idex startig or base value. The divisor is adjusted to reflect capitalisatio amedmets to the costituets of the idex, thereby allowig idex values to remai comparable through time. Idex Value t =CI t = Idex Market Value t Idex Divisor t Idex Market Value t =M t = i=1 s i,t f i,t e i,t ad Idex Divisor t =M * * t = p i,t i=1 p i,t s i,t f i,t e i,t-1 The followig example illustrates the adjustmet to the idex divisor to reflect a capital repaymet of USD 0.7 for Compay A: FTSE Russell Guide to Calculatio FTSE Global Equity Idex Series, v3.0, October of 18

6 Step 1 Idex at close Compay Share Price ($) Shares-i Issue (m) Free Float Factor Free Float Market Value ($m) A , , B , , C , , Total Market Value 393, Idex Value = Total Market Value Idex Divisor = 393, ,918.3 Step 2 Adjust compay A share price by USD 0.7 Compay Share Price ($) Shares-i Issue (m) Free Float Factor Free Float Market Value ($m) A , , B , , C , , , Step 3 Calculate New Divisor New Divisor= New Market Value Idex Value New Divisor= 350, = Whilst the calculatio of idexes is straightforward, the determiatio of the capitalisatio of each costituet compay ad ay capitalisatio adjustmets applied to the idex is more complex. A arbitrary value (e.g. 1000) is chose as the iitial or base idex value. O the base date the divisor is calculated as the aggregate market capitalisatio of the idex costituets divided by the base idex value. I order to prevet discotiuities i the idex as a result of corporate actios or chages i costituets, the divisor is adjusted for ay capital chages i the idex costituets. The adjustmet used by FTSE is based o the Paasche methodology which adjusts the idex divisor as of the close o the day before a corporate actio is effective. The implicatio of such adjustmets for portfolio maagers wishig to track the idex is that they eed to either ivest or realise cash at the market ope o the day the corporate actio is effective. I practice, portfolio maagers will sell/ivest at the previous day s close. FTSE Russell Guide to Calculatio FTSE Global Equity Idex Series, v3.0, October of 18

7 Sectio 4 Total retur idexes 4.0 Total retur idexes Total retur idexes measure the performace of capital plus reivested divided icome. 4.1 Ex-Divided Adjustmet The ex-divided (XDt) adjustmet represets the value of divideds declared by costituet compaies o the XD date (t) expressed i idex poits. The XD adjustmet is applied to the capital idex prior to the market ope o the XD date ad reflects the total value of divideds due o that date. The full amout of the divided is reivested at the adjusted (capital) idex level. 4.2 The aggregate or idex level cash divided (Dt) represets the total divided paymets of all idex costituets o day t. A adjustmet may be applied to reflect coutry specific tax treatmets applicable to divideds. Cotact FTSE for further iformatio o applicable tax rates. DD tt = dd ii,tt xx ss ii,tt xx ff ii,tt xx TT ii,tt xx ee ii,tt 1 ii=1 A currecy coversio is applicable oly to divideds paid i a currecy other tha that of the base currecy of the idex. 4.3 The market value of oe idex poit is equal to the divisor sice: Divisor t =M t * /CI t-1 The aggregate divided adjustmet ca therefore be expressed i terms of idex poits: DD tt XXXX tt = DDDDDDDDDDDDDD tt 4.4 The et of tax divided adjustmet of stock i is calculated as: TT ii,tt = 1 withholdig tax rate t Where the withholdig tax rate at time t is applicable to divideds received by istitutioal ivestors who are ot residet i the same coutry as the remittig compay ad who do ot beefit from double taxatio treaties. FTSE Russell Guide to Calculatio FTSE Global Equity Idex Series, v3.0, October of 18

8 4.5 Calculatio of Total Retur Idexes (TRI) The Total Retur Idex (TRI) measures the total retur o the uderlyig idex, combiig capital performace ad reivested icome. TRIs are calculated usig declared divideds. I practice, there is a timig delay betwee the XD date ad the receipt of divideds (paymet date). It is preferable to assume all icome is reivested o the XD date rather tha icur the complicatios of allowig a time lag before reivestmet of the declared divideds o the paymet date. The formula for calculatio of the curret day's TRI based o the previous day's TRI ad the XD adjustmet is show below: The total retur idex calculatio may be expressed as: TTTTTT tt = TTTTTT tt 1 CCCC tt /(CCCC tt 1 XXXX tt ) 4.6 The followig table illustrates the calculatio of a total retur idex. Capital Idex (CI) XD Adjust (XD) TRI Day * Day Day * Startig value Where o XD adjustmet occurs TRI = Previous TRI x Today s CI = Previous Day 2 TRI = x = Where o XD adjustmet occurs TRI = Previous TRI x Today s CI (Previous CI XD) Day 3 TRI = x 3220 (3200 5) = FTSE Russell Guide to Calculatio FTSE Global Equity Idex Series, v3.0, October of 18

9 Sectio 5 Divided yield 5.0 Divided yield Divided yield is a widely used measure of the icome retur o a stock or idex. I calculatig the divided yield of a idex, the umber of the shares i issue of each idex costituet is adjusted for free float. The yield calculatio reflects divideds declared by a compay, i.e. with o allowace for tax credits i the previous 12 moths. 5.1 Stock Level Divided Yield: dyi,t The aual stock level divided yield of stock i: dy i,t = d 12 i,t 100 p i,t 12 Where dd ii,tt ad pp ii,tt are the aual trailig divided ad stock price of stock i at time t respectively. Note for the Americas d_(i,t)^12 is the aualised most recetly reported quarterly divided. 5.2 Idex Level Divided Yield: DYt The idex level divided yield i percet is: 12 DY t =100 (d i,t s i,t f i,t e i,t-1 )/M t i=1 5.3 Idex Level Net of Tax Divided Yield: DYTt The idex level et of tax divided yield i percet is: 12 DYT t =100 (d i,t s i,t f i,t T i,t e i,t-1 )/M t i=1 FTSE Russell Guide to Calculatio FTSE Global Equity Idex Series, v3.0, October of 18

10 Sectio 6 Free float ad ivestable weightig 6.0 Free float ad ivestable weightig Free float is the proportio of shares i issue that are deemed to be tradable. The ivestable weight of a stock is the more restrictive of free float ad ay applicable foreig owership restrictio. A buffer of +/-3% is applied to limit chages to ivestable weights. r i,t =s i,t -r i,t f i,t =1-r i,t /s i,t i,t =f i,t -iw i,t-1 ; rouded to earest iteger If i,t >±3%, the f * i,t =f i,t, else f * i,t =f i,t-1 If for i,t-1 <f i,t-1 ad f * i,t >iw it-1 ±3% the iw i,t =Mi f * * i,t, for i,t else iw i,t =Mi f i,t-1, for i,t The ivestable weight of a stock i is adjusted if its foreig headroom falls below a certai level. FTSE defies foreig headroom as the percetage of shares available to foreig ivestors as a proportio of the uderlyig ivestability weight. The ivestability weight of a stock is adjusted by the foreig headroom i icremets of 10% at the quarterly reviews. iiii ii,tt = iiii ii,tt 0.9 Further iformatio o the defiitios of free float ad foreig headroom ca be foud i the documet Free Float Restrictios ad FTSE Global Equity Idex Series Groud Rules, respectively. FTSE Russell Guide to Calculatio FTSE Global Equity Idex Series, v3.0, October of 18

11 Sectio 7 FTSE Global Equity Idex Series algorithms 7.0 FTSE Global Equity Idex Series algorithms 7.1 Coutry ad Regioal Idexes Regioal idexes ad sigle coutry idexes may cosist of idividual securities deomiated i a rage of currecies, ecessitatig the coversio of stock prices to a commo currecy. $ = pp ii,tt ss ii,tt ff ii,tt ee ii,tt $ DDDDDDDDDDDDDD jj,tt CCCC jj,tt ii=1 $ ii jj Where e $ i,t : Exchage rate to USD of stock i o day t CI $ j,t :USD capital idex of coutry j o day t The US dollar idex may also be derived as: CI $ j,t =CI j,t x $ e x,t=0 $ /e x,t Where CI x $ j,t is coutry idex j expressed i aother currecy (x) ad e x,t=0 is the currecy x to USD exchage rate o the idex base date. Note the exchage rate is expressed i uits of x per dollar. Similarly, a poud sterlig idex may be derived as: CI j,t =CI j,t or CI j,t =CI j,t x e x,t=0 $ e $,t=0 /e x,t /e $,t Where e $,t is the umber of USD dollars per poud sterlig at time t. 7.2 Local Currecy Coutry Idexes Local currecy coutry idexes are idexes i which the effect of currecy is removed. They are calculated i a similar maer to coutry idexes, with the price of all stocks coverted to a commo domestic currecy. For example, USD deomiated stocks withi the Hog Kog ad Russia coutry idexes are coverted to Hog Kog Dollars ad Roubles respectively. CI j,t L = i=1 p i,t s L i,t f i,t e i,t-1 i j L Divisor j,t FTSE Russell Guide to Calculatio FTSE Global Equity Idex Series, v3.0, October of 18

12 Where e L i,t : Local currecy exchage rate of stock i o day t CI L j,t :Local currecy capital idex of coutry j o day t The currecy effect is removed by holdig exchage rates costat at the previous day s level. Divisor L j,t = p * L i,t s i,t f i,t e i,t-1 Where i=1 i j p * i,t : Price of stock i o day t-1 adjusted for corporate actios effective o day t 7.3 Local Currecy Regioal Idexes Regioal idexes typically cosist of costituet stocks are deomiated i multiple currecies. The local currecy versio of such a idex removes the effect of currecy movemets. 7.4 Weighted Average of Local Currecy Coutry Idexes A regioal local currecy idex may be calculated as the weighted average of the local currecy, compoet coutry idex returs. The coutry weights are the USD market capitalisatios at t-1 adjusted for corporate evets effective o day t. m CI L k,t = j=1 M *$ j,t m j=1 M *$ j,t CI L j,t L CI j,t-1-1 j k Where *$ j,t =Divisor $ j,t = p * L i,t s i,t f i,t e i,t-1 i=1 i j Equivaletly, a regioal local currecy idex may be calculated by aggregatig the local market capitalisatio of each compoet coutry after covertig to a commo currecy e.g. USD at a fixed exchage rate betwee t-1 ad t. CI k,t L = m M L $ j=1 j,t e t-1 m *L j=1 M j,t e CI L $ k,t-1 t-1 j k FTSE Russell Guide to Calculatio FTSE Global Equity Idex Series, v3.0, October of 18

13 Sectio 8 FTSE currecy hedgig algorithms 8.0 FTSE currecy hedgig algorithms The FTSE currecy hedgig methodology allows exposure to the returs of the foreig assets i the idex without beig exposed to the volatility of the foreig exchage rates. The Idexes hedge each currecy i two stages. The first stage calculates the impact of hedgig for each coutry; the secod stage applies this calculatio to the hedged idex. Impact of Hedgig Impact of Hedgig = i= 1 McapiC i= 1 SM 1 S HF FIRt S Mcap C i t The impact of hedgig weights each coutry by market capitalisatio ad calculates the hedged gai or loss at the curret calculatio date. Where: - Mcap,C M-1 = Coutry idex market capitalisatio at the close of the previous hedgig period HF = Hedgig Factor (betwee 0 ad 1), this is the proportio of the coutry to be hedged S M-1 = Spot exchage rate at the close of the previous hedgig period S t = Spot exchage rate at the close of the curret calculatio date FIR t = Forward iterpolated rate at the close of the curret calculatio date Please ote the FTSE Currecy Hedged Idexes are based o a hedgig factor of 1, with each uderlyig coutry costituet treated as havig the same currecy as its domestic idex. Hedged Capital Idex Hedged Capital Idex = HI UIt UIM 1 + IH t The capital hedged idex is derived from the uhedged capital idex performace (as outlied i the FTSE Global Equity Idex Guide to Calculatio Methods) ad the impact of hedgig at the curret calculatio date. FTSE Russell Guide to Calculatio FTSE Global Equity Idex Series, v3.0, October of 18

14 Where HI M-1 = Hedged Capital Idex at the close of the previous hedgig period UI M-1 = Uhedged Capital Idex at the close of the previous hedgig period UI t = Uhedged Capital Idex at the close of the curret calculatio date IH t = Impact of hedgig at the close of the curret calculatio date Hedged Total Retur Idex Hedged Total Retur Idex = HTRI UTRIt UTRIM 1 + IH t The hedged total retur idex is derived from the uhedged total retur idex performace (as outlied i the FTSE Global Equity Idex Guide to Calculatio Methods) ad the impact of hedgig at the curret calculatio date. Where: HTRI M-1 = Hedged Total Retur Idex at the close of the previous hedgig period UTRI M-1 = Uhedged Total Retur Idex at the close of the previous hedgig period UTRI t = Uhedged Total Retur Idex at the close of the curret calculatio date IH t = Impact of hedgig at the close of the curret calculatio date Forward Rates ad Spot Rates FTSE will use oe moth WM Reuters 16:00 hrs Lodo Time mid price forward rates i its currecy hedged idexes calculatio. All rates are the last workig day of the relevat market moth direct USD quotes. Spot rates that are used i the currecy hedgig calculatio are WM/Reuters Closig Spot Rates, compiled by The WM Compay. Forward Iterpolated Rates Forward Iterpolated Rates = ( S F )( N ) d t FM 1 + Nd Forward iterpolated rates eable FTSE to value a forward cotract o a particular iter moth period. They do this by calculatig the spot/forward discout/premium at the begiig of the cotract period, ad the discout this over the life of the cotract. Where:- N d- t = N d = F M-1 = S M-1 = Number of days left of forward cotract Number of days of forward cotract The forward cotract (rate) bought at the close of the previous hedgig period Spot rate at the close of the previous hedgig period FTSE Russell Guide to Calculatio FTSE Global Equity Idex Series, v3.0, October of 18

15 I the example below a idex has bee created that comprises of Caada, ad the Uited States. The example is a capital idex i Hog Kog Dollars where each coutry is 35 per cet hedged ito Hog Kog Dollars. The idex is based o a period of oe caledar moth. Uhedged Idex Uhedged Idex Values (Hog Kog Dollars) Coutry Idex Market Capitalisatio (HKDm) Caada 3,350, USA 78,576, Spot Rates CAD/HKD USD/HKD Forward Iterpolated Rates CAD/HKD USD/HKD Impact of Hedgig (Iter Moth Calculatio) The example below is based o calculatig the impact of hedgig for the 14 th November. Impact of Hedgig = Where:- i= 1 McapiC i= 1 SM 1 S HF FIRt St Mcap C i ,350, ,576, ,350, ,576, , , ,350, ,576, = FTSE Russell Guide to Calculatio FTSE Global Equity Idex Series, v3.0, October of 18

16 Forward Iterpolated Rates (Iter Moth Calculatio) Forward Iterpolated Rates = ( S F )( N ) d t FM 1 + Nd Where: - N d-t = 14 N d = 28 F M-1 = CAD/HKD S M-1 = CAD/HKD Forward Iterpolated Rates = ( )( 14) = Hedged Idex (Iter Moth Calculatio) Hedged Idex = HI UIt UIM 1 + IH = = t Impact of Hedgig (Ed of Moth Calculatio) The impact of hedgig calculatio below is based o the last workig day of the caledar moth. Impact of Hedgig = Where: - i= 1 McapiC i= 1 SM 1 S HF FIRt St Mcap C i ,350, ,576, ,350, ,576, (- 21, ) - 18, ,350, ,576, Hedged Idex (Ed of Moth Calculatio) Hedged Idex = HI UIt UIM 1 + IH t = = = FTSE Russell Guide to Calculatio FTSE Global Equity Idex Series, v3.0, October of 18

17 Appedix A: Stocks tradig o a o-domestic exchage 1. Stocks Tradig o a No-Domestic Exchage The price source ad atioality of costituet stocks is determied idividually (see FTSE Global Equity Idex Series Groud Rules). Therefore costituets of a Coutry Idex may price from odomestic stock exchages. Thus, a Coutry Idex may reflect price ad exchage rate movemets whe the domestic exchage is closed. Compaies tradig i a currecy other tha the currecy of the domestic market or i markets that share currecies with other markets (e.g., Eurozoe, Shaghai ad Shezhe stock markets for example) may cause idex movemets whe the market is closed, due to fluctuatios i the foreig exchage rate. FTSE moitors the relative liquidity of the foreig board ad domestic quotes of Thai ad Malaysia stocks, ad uses most liquid lie to price costituet stocks. Relative liquidity is assessed ad chages implemeted as part of the semi-aual regioal review. 2. Pricig of Brazilia Costituets Costituets of the FTSE Brazil All Cap Idex which are priced i lots use the Quote Lot size, which may be altered from time to time by the Brazilia Stock Exchage. FTSE Russell Guide to Calculatio FTSE Global Equity Idex Series, v3.0, October of 18

18 Appedix B: Further iformatio A Glossary of Terms used i FTSE Russell s Groud Rule documets ca be foud usig the followig lik: For further iformatio ad ay other groud rules please visit or cotact ifo@ftse.com Lodo Stock Exchage Group compaies. All rights reserved. Lodo Stock Exchage Group compaies icludes FTSE Iteratioal Limited ( FTSE ), Frak Russell Compay ( Russell ), MTS Next Limited ( MTS ), ad FTSE TMX Global Debt Capital Markets Ic. ( FTSE TMX ). All rights reserved. FTSE, Russell, MTS, FTSE TMX ad FTSE Russell ad other service marks ad trademarks related to the FTSE or Russell idexes are trade marks of the Lodo Stock Exchage Group compaies ad are used by FTSE, MTS, FTSE TMX ad Russell uder licece. All iformatio is provided for iformatio purposes oly. Every effort is made to esure that all iformatio give i this publicatio is accurate, but o resposibility or liability ca be accepted by the Lodo Stock Exchage Group compaies or its licesors for ay errors or for ay loss from use of this publicatio. Neither the Lodo Stock Exchage Group compaies or ay of their licesors make ay claim, predictio, warraty or represetatio whatsoever, expressly or impliedly, either as to the results to be obtaied from the use of the Idexes or the fitess or suitability of the Idexes for ay particular purpose to which they might be put. The Lodo Stock Exchage Group compaies do ot provide ivestmet advice ad othig i this documet should be take as costitutig fiacial or ivestmet advice. The Lodo Stock Exchage Group compaies make o represetatio regardig the advisability of ivestig i ay asset. A decisio to ivest i ay such asset should ot be made i reliace o ay iformatio herei. Idexes caot be ivested i directly. Iclusio of a asset i a idex is ot a recommedatio to buy, sell or hold that asset. The geeral iformatio cotaied i this publicatio should ot be acted upo without obtaiig specific legal, tax, ad ivestmet advice from a licesed professioal. No part of this iformatio may be reproduced, stored i a retrieval system or trasmitted i ay form or by ay meas, electroic, mechaical, photocopyig, recordig or otherwise, without prior writte permissio of the Lodo Stock Exchage Group compaies. Distributio of the Lodo Stock Exchage Group compaies idex values ad the use of their idexes to create fiacial products require a licece with FTSE, FTSE TMX, MTS ad/or Russell ad/or its licesors. The Idustry Classificatio Bechmark ( ICB ) is owed by FTSE. FTSE does ot accept ay liability to ay perso for ay loss or damage arisig out of ay error or omissio i the ICB. FTSE Russell Guide to Calculatio FTSE Global Equity Idex Series, v3.0, October of 18

Indice Comit 30 Ground Rules. Intesa Sanpaolo Research Department December 2017

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