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News • IndexUniverse–Solactive Developed Markets Currencies TW Investable Index (IUSLDTWI Index) • IndexUniverse–Solactive Emerging Markets Currencies TW Investable Index (IUSLETWI Index) • IndexUniverse–Solactive Asia- Pacific Currencies TW Investable Index (IUSLATWI Index) Index weights are set each year based on Federal Reserve reported data on the level of trade between the U.S. and foreign countries. The index also takes into account the overnight lending rate of each currency, giving investors a full picture of the exposure they get to the currency markets. This process creates a dynamic index series that reflects the purchasing power of the U.S. dollar measured against the currencies of trading partners of the United States. The flagship IU−Solactive U.S. Dollar TW Index holds a trade-weighted basket of 26 currencies, led by the Chinese renminbi, which represents 20.37 percent of the index. The U.S. Dollar Index, by comparison, holds six currencies, led by the euro at a 57.60 percent weight. The renminbi is not included in the U.S. Dollar Index. INDEXING DEVELOPMENTS MSCI Adds To Risk Premia Family Global index provider MSCI expanded its risk premia index family in December with the launch of five new quality indexes. The benchmarks look to capture the performance of equities with quality growth characteristics. They include the MSCI ACWI Quality Index, the MSCI World Quality Index, the MSCI Emerging Markets Quality Index, the MSCI Europe Quality Index and the MSCI USA Quality Index. The indexes capture two underlying risk premia, growth and low leverage, MSCI said in a press release. The MSCI Quality Index methodology selects stocks based on high return on equity, stable yearover-year earnings growth and low financial leverage. The indexes are designed to underlie investable products and to be used as benchmarks, the press release said. Russell Adds IPOs To Global Index Russell said in a December press release that it was adding 48 initial public offerings to the broad Russell Global Index as of Dec. 21. Half of The Chicago Board Options Exchange launched the CBOE Low Volatility Index at the end of November. those IPOs were added from the U.S., and half from outside the U.S. The U.S. companies included three large-cap stocks, 19 small-cap stocks and two micro-cap stocks, the press release said. Four of the added non- U.S. companies are domiciled in the U.K., with three from Singapore. In all, 10 of the non-U.S. stocks being added non-U.S. to the global index are from Asia, and 10 are from Europe. CBOE Rolls Out Low-Volatility Index The Chicago Board Options Ex - change launched the CBOE Low Volatility Index (LOVOL) at the end of November, according to a press release. The new index basically combines equity exposure to the S&P 500 Index with an options overlay strategy that sells calls on S&P 500 options and buys one-month VIX 30-delta calls, the press release said. The exchange described the CBOE LOVOL as a combination of the strategies represented by the CBOE S&P BuyWrite Index and the CBOE VIX Tail Hedge Index. The index strategy’s objective is to reduce the downside volatility of an S&P 500 portfolio without detracting significantly from the upside performance of the equities, the press release said. Facebook Joins Nasdaq-100 Facebook joined the Nasdaq-100 Index in mid-December, meaning it now will be included in the portfolio of the $30 billion PowerShares QQQ Trust (NasdaqGM: QQQ), as well as the portfolios of other ETFs tied to the index. Indeed, QQQ, which replicates the Nasdaq benchmark, had already bought more than 11.14 million shares of the social media company, representing a little over 1 percent of the fund’s portfolio, by the time the stock was added to the index, according to PowerShares. Facebook, which went public in May 2012, replaced Infosys, after the India-based consulting and technology firm transferred its listing to the New York Stock Exchange. Facebook also joined the Nasdaq-100 Equal Weighted Index 12 March / April 2013
and the Nasdaq-100 Technology Sector Index, Nasdaq said. Many had hoped that after the Nasdaq OMX Group changed its “seasoning rules” in April, Facebook would be entering Nasdaq’s flagship index by September 2012. Instead, in September, Facebook was first added to the Nasdaq Q-50 Index—the feeder index for the Nasdaq-100. S&P DJI Teams With Townsend On REIT Index S&P Dow Jones Indices rolled out the Dow Jones Townsend Core U.S. REIT Index in December, according to a press release. The index was developed with input from The Townsend Group, a real estate investment consulting firm serving institutional investors. The REIT portfolio of the index is designed to mimic the return/risk profile of a privately held investment in real estate. The components must be focused on longer-term leases and are drawn from specific REIT categories. REITs classified as factory outlets, hotels, manufactured homes, mixed industrial/office and suburban office are excluded from the index, according to the index’s fact sheet. Individual constituent weights are capped in order to improve diversification. The new index is part of the Dow Jones Real Estate index family, the press release said. FTSE Unveils ‘Super Liquid’ Family In late November, FTSE Group said in a press release that it had launched a family of highly liquid, narrow-based indexes that have similar risk/return characteristics and sector breakdowns to their broader parent indexes. The FTSE Super Liquid Index Series debuted with 11 initial indexes covering different development levels, regions and individual countries. Components are selected from the parent index primarily for liquidity with the intention of creating a highly tradable portfolio that can be easily and cheaply replicated. The FTSE Developed Large Cap Super Liquid Index, for example, exhibits a 12-month correlation of 0.995 with its parent index, the FTSE Developed Large Cap Index, according to a fact sheet. However, as of Dec. 31, 2012, it only had 235 constituents versus 843 in the broader index. Russell Launches ‘High Efficiency’ Indexes Russell has rolled out a family of indexes based on its existing “Defensive” index methodology, the index provider said in a late January press release. The Russell High Efficiency Defensive Indexes are designed to target highquality stocks exhibiting low volatility. They were developed jointly with Westpeak Global Advisors, an investment management and research firm. The original Russell Defensive Index methodology selects components based on “stability” scores and weights them by market capitalization; however, the methodology for the “High Efficiency” indexes also weights components by their stability scores. Each index targets a specific level of tracking error relative to its parent Russell index, the press release said. When it debuted, the series included 22 indexes derived from broader U.S. and global indexes. Stoxx Rolls Out ‘EM Exposure’ Benchmark Stoxx Limited announced the launch of the Stoxx Global 1800 EM Exposed Index in a December press release. The index targets the components of the Stoxx Global 1800 Index that derive a significant portion of their revenues from emerging markets. The index methodology relies on regional revenue breakdowns from the companies, but can also estimate a company’s exposure to emerging markets based on the company’s home country’s GDP, imports and exports. Companies achieving an “exposure score” above 33 percent are included in the index and are assigned a weighting in the index based on their market capitalization and exposure level, the press release said. ‘Real Asset’ Index Targets Inflation Morningstar Inc. rolled out a multiasset index in January that it says can be used to help hedge against inflation. The Morningstar US Real Asset Index represents the performance of liquid “real assets” such as inflationprotected securities, REITs and commodities-based investments. According to Morningstar, investors are concerned about inflation, and a number of new funds launched in the past few years hold portfolios of real assets. The new index is designed to serve as a benchmark for investors in those types of products. The index has a 40 percent allocation toward TIPS and a 30 percent weighting in commodities futures. REITs and commodities-related equities each receive weightings of 15 percent, the press release said. AROUND THE WORLD OF ETFs ProShares Debuts Merger Arb ETF ProShares rolled out a mergerarbitrage ETF in mid-December that tracks the S&P Merger Arbitrage Index; the benchmark seeks to capture the spread between the actual stock price of a company targeted for acquisition at the time of the deal’s announcement and the price the acquiring company has said it will pay. The ProShares Merger ETF (BATS: www.journalofindexes.com March / April 2013 13
Page 1 and 2: Plus an interview with Robert Mayna
Page 3 and 4: www.journalofndexes.com Vol. 16 No.
Page 5 and 6: McGRAW-HILL You can never have too
Page 7 and 8: ©2013 Morningstar, Inc. All rights
Page 9 and 10: THE POWERSHARES DB COMMODITY INDEX
Page 11 and 12: InsideIndexing risk, return & inDex
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