Guide to the Dow Jones BRIC 50 All DR 10% Volatility Risk Control Index SM

Transcription

1 Guide to the Dow Jones BRIC 50 All DR 10% Volatility Risk Control Index SM

2 Contents 01. Introduction Key Features Base Date and Value Dividend Treatment Dissemination Computational Precision Symbols Leverage Factor Index Components & Methodology Index Universe Component Selection Index Methodology Index Formula Index Maintenance Data Policy

3 01. Introduction The Dow Jones BRIC 50 All DR 10% Volatility Risk Control Index tracks the performance of 50 of the largest American Depository Receipts (ADRs) and Global Depository Receipts (GDRs) covering the Brazil, Russia, India and China Offshore markets, listed in the United States and/or the United Kingdom. The index aims to limit risk by targeting a predetermined level of volatility (10%). The volatility level is achieved by dynamically allocating between a base index the Dow Jones BRIC 50 All DR Index and a cash component. About the Dow Jones BRIC 50 All DR Index The Dow Jones BRIC 50 All DR Index represents 50 of the largest and most liquid American Depository Receipts (ADRs) and Global Depository Receipts (GDRs) for the Brazil, Russia, India and China Offshore markets, listed in the United States and/or the United Kingdom. Components are selected based on float-adjusted market capitalization and average daily trading volume. For more information see the index methodology at Key Features 2.1 Base Date and Value Calculation of the Dow Jones BRIC 50 All DR 10% Volatility Risk Control Index began on February 3, Real index history is available daily from this date forward. Back-tested historical data have been calculated daily back to March 31, 2003, the date at which the index base value is set at 100. Estimated back-tested historical data represents calculations of how the index might have performed in the past if it had existed. Back-tested performance information is purely hypothetical and is solely for informational purposes. Back-tested performance does not represent actual performance and should not be interpreted as an indication of actual performance. Past performance is not indicative of future results. Index performance is not the same as fund performance and does not reflect management and other fees. 2.2 Dividend Treatment The Dow Jones BRIC 50 All DR 10% Volatility Risk Control Index is calculated in both excess return and total return forms in U.S. dollars and euros. The excess return index is designed to track an unfunded investment in the underlying index while the total return level reflects both movements in stock prices and the return of the cash component. Both the excess and total return indexes use the Dow Jones BRIC 50 All DR Total Return Index (with reinvested dividends) as their base index. 2.3 Dissemination The index is calculated and disseminated at the end of the trading day, Monday through Friday during both U.S. and U.K. local trading hours. 2.4 Computational Precision Index values are available with six decimal precision (note: index values displayed by vendors are rounded to two decimal places). 2.5 Symbols Index Name Dow Jones BRIC 50 All DR 10% Volatility Risk Control Index SM - Total Return Dow Jones BRIC 50 All DR 10% Volatility Risk Control Index SM - Excess Return 2.6 Leverage Factor Suggested Symbols Bloomberg Reuters Telekurs DJBDV10R DJBDV10R.DJBDV10R DJBD10P DJBDV10D DJBDV10D.DJBDV10D DJBDV10D Date Formula Value Symbol 3/31/2003 leverage factor buffered DJBDV10T 3/31/2003 leverage factor buffered DJBDV10R 03. Index Components and Methodology 3.1 Index Universe The component selection universe for the base index, Dow Jones BRIC 50 All DR Index, is defined as all Brazilian, Russian, Indian and China Offshore companies in the Dow Jones Total Stock Market Indexes that have an exchange listing in either the United States or the United Kingdom. In the case of multiple share classes of a company, the less liquid share class is excluded. In the Brazil, Russia, India and China Offshore markets, eligible securities are screened for liquidity. Any security that had more than 10 non-trading days over the past quarter is excluded, unless the lack of trading is due to a situation that is determined to be temporary. The remaining companies are then ranked by float-adjusted market capitalization to represent more accurately the investable size of each security. Stocks in the top 95% of the underlying float-adjusted market capitalization are then selected as components of the underlying indexes that form the universe for the Dow Jones BRIC 50 All DR Index, skipping stocks that fall in the bottom 1% of the universe by float-adjusted market capitalization and in the bottom 0.01% of the universe by turnover. 3.2 Component Selection Components are selected for the Dow Jones BRIC 50 All DR Index annually in June within each country based on rankings by size and liquidity, subject to buffers, and then the selections are aggregated to create the index. 3.

4 Fifteen components are targeted for Brazil, India and China, and five for Russia. Selection within each country proceeds as follows: 1. The largest 30 stocks (10 for Russia) are ranked by floatadjusted market capitalization. 2. The largest 30 stocks (10 for Russia) are ranked by average daily turnover volume for the three months prior to the selection date. 3. A final ranking is calculated by equally weighting the market capitalization and volume ranks. 4. Components are selected top-down by final ranking until the country s target component number is reached, subject to the following buffers: If a noncomponent is among the top 10 (3 for Russia) ranked stocks it will replace the lowest ranked component. If a component is not among the top 20 (7 for Russia) ranked stocks it will be replaced by the highest ranked noncomponent. The weighting of each component is capped at 10% of the index s total market capitalization at each quarterly update, if necessary. 3.3 Index Methodology The volatility level for the Dow Jones BRIC 50 All DR 10% Volatility Risk Control Index is achieved by dynamically allocating between the base index and a cash component. The allocation between the Dow Jones BRIC 50 All DR Index and cash is determined using the 20-day or 60-day realized volatility of the Dow Jones BRIC 50 All DR Index, choosing the higher of the two volatilities. If realized volatility is higher than the target volatility specified by the index name, the allocation to the Dow Jones BRIC 50 All DR Index will be set at a level less than 100%, with the remainder allocated to cash, such that the target volatility is achieved. 3.4 Index Formula Variables Underlying Index (Daily Index Level) [UI] = the base index return within the volatility risk control index Dow Jones BRIC 50 All DR 10% Volatility Risk Control Index (EUR/ USD) Interest Rate [IR] = the cash index return within the 10% volatility risk control index EONIA for Dow Jones BRIC 50 All DR 10% Volatility Risk Control Index (EUR) USD 3-Month LIBOR for Dow Jones BRIC 50 All DR 10% Volatility Risk Control Index (USD) Realized Volatility Formula = the volatility measure within the volatility risk control index Maximum of 20-day and 60-day realized volatility with one -day lag in observations Total return index series of underlying index used for both the total return and excess return versions of the volatility risk control index Target Volatility [Volatility Target ] = the target level of volatility set for the volatility risk control index 10% Maximum Leverage Factor [LeverageFactor MAX ] = the maximum leverage factor allowed in the volatility risk control index 150% Rebalancing Buffer [RB] = the minimum tolerance level for volatility risk control index allocation adjustments at rebalance 5% If realized volatility is lower than the target volatility, the allocation will be 100% to the Dow Jones BRIC 50 All DR Index, applying a leverage factor that represents exposure of up to 150% of the index, such that the target volatility is achieved. The 20-day and 60-day realized volatilities are calculated daily. Allocation adjustments are made only in the event that the index formula specifies an allocation change (either positive or negative) of 5% or more relative to the previous day s level. The EUR version of the index adjusts cash for Euro Overnight Index Average (EONIA). The USD version of the index adjusts cash for USD 3-month LIBOR. 4.

5 Formulas The volatility risk control index value at time t is calculated as: VolatilityRiskControlIndexValue t = VolatilityRiskControlIndexValue t-1 * (1+VolatilityRiskControlIndexReturn t ) The formula for calculating the volatility risk control index return in total return is as follows: VolatilityRiskControlIndexReturn t = EquityWeight t * R UI,t + (1 EquityWeight t ) * R IR,t 1 * D t 1,t /360 The formula for calculating the volatility risk control index return in excess return is as follows: VolatilityRiskControlIndexReturn t = EquityWeight t * (R UI,t R IR,t 1 * D t 1,t /360) where: UnderlyingIndexReturnt [R UI,t ] = UnderlyingIndexValue t UnderlyingIndexValue t 1 1 InterestRate t [R IR,t ] = the interest rate set for the index, such as EONIA D t 1,t = the number of calendar days between day t 1 and day t The equity weight in the volatility risk control index is determined as follows: LeverageFactor t [LF t ] = MIN(LeverageFactor MAX, Volatility Target / MAX(Volatility Realized,t-1 (20), Volatility Realized,t 1 (60))) If LF t EquityWeight PreviousRebalanceDate > Rebalancing Buffer, EquityWeight t = LFt; otherwise, EquityWeight t = EquityWeigh t 1 RealizedVolatility t [Volatility Realized,t (n)] = 252 x n n 1 x 1 n j = n 1n j = 1 UnderlyingIndexValue 2 j UnderlyingIndexValue j 1 = n 1 n j j = 1 1n UnderlyingIndexValue 2 j UnderlyingIndexValue j 1 n = number of trading days 5.

6 04. Index Maintenance For the base index (the Dow Jones BRIC 50 All DR Index), component shares outstanding and free-float factors are reviewed quarterly to coincide with the review of the Dow Jones Total Stock Market Indexes. A change to the base index composition and a related weight adjustment is necessary whenever there is an extraordinary event (e.g. delisting, bankruptcy, merger, takeover, etc.) involving an index component. In these cases, each event is accounted for as soon as it is effective. Such changes in an index s components are announced, whenever possible, two days prior to their implementation. 05. Data Correction Policy To maintain a high standard of data integrity, a series of procedures have been implemented to ensure accuracy, timeliness and consistency. Input prices are monitored using a variety of computerized range-check warning systems for both ticker-plant and real-time index systems. Fault tolerant methods are employed in the collection of market and corporate action data. Various verification and audit tasks are performed to ensure the quality of the real-time data feeds and related market data. While significant efforts are taken to ensure the accuracy of the information used for the index calculation, an index error may occur due to incorrect or missing data, including trading prices, exchange rates, shares outstanding and corporate actions, operational errors or other reasons. 6.

7 For more information on the Dow Jones BRIC 50 All DR 10% Volatility Risk Control Index SM, or call Americas ; Asia ; Europe Learn more at All information as of June CME Group Index Services LLC All rights reserved. Dow Jones Indexes is a licensed trademark of CME Group Index Services LLC ( CME Indexes ). Dow Jones, Dow Jones Indexes, DJ, Dow Jones BRIC 50 All DR 10% Volatility Risk Control Indexes and all other index names listed above are service marks of Dow Jones Trademark Holdings, LLC ( Dow Jones ) and have been licensed for use by CME Indexes. CME is a trademark of Chicago Mercantile Exchange Inc. Investment products based on the Dow Jones BRIC 50 All DR 10% Volatility Risk Control Index are not sponsored, endorsed, sold or promoted by Dow Jones, CME Indexes or their respective affiliates and none of Dow Jones, CME Indexes or any of their respective affiliates make any representation regarding the advisability of investing in such products. Inclusion of a company in any of the index does not in any way reflect an opinion of Dow Jones, CME Indexes or any of their respective affiliates on the investment merits of such company. None of Dow Jones, CME Indexes or any of their respective affiliates is providing investment advice in connection with these indexes. All information in these materials is provided as is. CME Indexes, Dow Jones and their respective affiliates do not make any representation regarding the accuracy or completeness of these materials, the content of which may change without notice. RULE-BRIC-VOLR