S&P U.S. Preferred Stock Index Methodology

Transcription

1 S&P U.S. Preferred Stock Index Methodology S&P Dow Jones Indices: Index Methodology May 2015

2 Table of Contents Introduction 3 Highlights 3 Eligibility Criteria 4 Index Eligibility 4 Eligibility Factors 4 Inclusion Criteria 4 Exclusion Criteria 5 Timing of Changes 5 Sub-Index Rules 6 The S&P U.S. Fixed Rate Preferred Stock Index 6 The S&P U.S. Floating Rate Preferred Stock Index 6 The S&P U.S. Variable Rate Preferred Stock Index 6 The S&P U.S. Investment Grade Preferred Stock Index 6 The S&P U.S. High Yield Preferred Stock Index 7 The S&P Not Rated Preferred Stock Index 7 The S&P U.S. Preferred REIT Stock Index 7 The S&P U.S. Preferred Infrastructure Stock Index 8 Index Construction 9 Approaches 9 Index Calculations 9 Index Maintenance 11 Rebalancing 11 Corporate Actions 11 Base Dates and History Availability 12 Index Data 13 Total Return Indices 13 S&P Dow Jones Indices: S&P U.S. Preferred Stock Index Methodology 1

3 Index Governance 14 Index Committee 14 Index Policy 15 Announcements 15 Pro-forma Files 15 Holiday Schedule 15 Unscheduled Market Closures 16 Recalculation Policy 16 Real-Time Calculation 16 Index Dissemination 17 Tickers 17 FTP 17 Web site 17 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 U.S. Preferred Stock Index Methodology 2

4 Introduction The S&P U.S. Preferred Stock Index (the index) is designed to serve the investment community s need for an investable benchmark representing the U.S. preferred stock market. Preferred stocks are a class of capital stock that pays dividends at a specified rate and has a preference over common stock in the payment of dividends and the liquidation of assets. Highlights The index is comprised of U.S. traded preferred stocks that meet criteria relating to minimum size, liquidity, exchange listing and time to maturity. The index is calculated with a modified capitalization weighted scheme, with modifications being made to index shares to prevent single issuer concentration and improve index liquidity. The index is divided into three sub-indices based on the type of dividend paid by the stock (i.e. fixed rate, floating rate, or variable rate). The index is rebalanced on a quarterly basis; changes are effective after the close of trading on the third Friday of January, April, July, and October. Corporate actions such as maturity, conversion, calls and delistings are treated according to a set of rules further defined in this document. Share changes for existing index constituents occur semi-annually in January and July after the close of trading on the third Friday. The reference date for additions and deletions is five business days prior to the first Friday of the rebalancing month. This methodology was created by S&P Dow Jones Indices 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 so that the index continues to achieve its objective. S&P Dow Jones Indices: S&P U.S. Preferred Stock Index Methodology 3

5 Eligibility Criteria Index Eligibility The S&P U.S. Preferred Stock Index is comprised of U.S. traded preferred stocks that meet criteria relating to size, liquidity, issuance type, exchange listing and time to maturity. Eligibility Factors Exchange Listing. Preferred stocks trading on the NYSE (including NYSE Arca and NYSE Amex), the NASDAQ Global Select Market, the NASDAQ Select Market or the NASDAQ Capital Market are eligible. Over-the-counter, bulletin board and unregistered (144[A]) securities are excluded. Type of Issuance. Preferred stocks issued by a company to meet its capital or financing requirements are eligible. These include floating, variable, and fixed rate preferreds, cumulative and non-cumulative preferreds, preferred stocks with a callable or conversion feature, and trust preferreds. Some trust preferreds issued by a company to meet its capital requirements carry a brand name or moniker these are included. However, structured products and brand name products issued by financial institutions that are packaged securities linked to indices, baskets of stocks or another company s stock are excluded. Special ventures such as toll roads or dam operators may issue preferred-like securities; these are also excluded. For the purposes of index membership, S&P Dow Jones Indices applies the inclusion and exclusion criteria separately as detailed below. Inclusion Criteria Maturity or Conversion Schedule. Preferred stocks that do not have a mandatory conversion or scheduled maturity within the next 12 months are eligible. Market Capitalization. Preferred stocks with market capitalization of more than US$ 100 million are eligible. Volume. Preferred stocks that have traded more than 250,000 shares per month over the previous six months are eligible for inclusion. Issues with fewer than six months of trading history are evaluated over the available period and may be included should size and available trading history infer the issue will satisfy this requirement. Indicated Yield. Preferred stocks for which S&P Dow Jones Indices cannot determine an indicated dividend yield are not eligible. S&P Dow Jones Indices: S&P U.S. Preferred Stock Index Methodology 4

6 Different Securities Issued by the Same Issuer. The index does not limit the number of preferred stocks issued by a single company. However, a maximum weight of 10% is set per issuer. All eligible securities for an issuer are included in the index, with the aggregate weight capped on a pro rata basis to a maximum of 10% of the index market capitalization. Exclusion Criteria Market Capitalization. Preferred stocks with market capitalization of less than US$ 75 million as of the rebalancing reference date are excluded from the index. Volume. Preferred stocks that have not traded more than 125,000 shares per month over the previous six months as of the rebalancing reference date are excluded from the index. However, no issue is removed from the index for violating this requirement for the first 12 months following its addition effective date. Indicated Yield. Preferred stocks for which S&P Dow Jones Indices cannot determine an indicated dividend yield as of the rebalancing reference date are excluded from the index. Note: While the inclusion criteria explicitly excludes issues that have a mandatory conversion or scheduled maturity within 12 months of the rebalancing effective date, no such rule exists for continued membership. Timing of Changes Index rebalancing occurs quarterly after the close of the third Friday in January, April, July, and October. The reference date for additions and deletions is five business days prior to the first Friday of the rebalancing month. Share changes for existing index constituents occur semi-annually in January and July after the close of the third Friday. Additions. Additions occur only at the quarterly rebalancing. There are no intra-quarter additions. Deletions. A constituent is deleted intra-quarter if it is called or undergoes mandatory conversion. Subject to market conditions, S&P Dow Jones Indices provides five-days advance notice of a deletion. Should an existing index member delist during the five-day notification period, it is removed at the closing price from its last day of trading. The quarterly rebalancing also results in deletions, if constituents no longer meet continued eligibility requirements. S&P Dow Jones Indices: S&P U.S. Preferred Stock Index Methodology 5

7 Sub-Index Rules The following are sub-indices of the S&P U.S. Preferred Stock Index (the parent index). Weight capping rules as described in the Eligibility Criteria and Index Construction chapters are applied to the universe of stocks for the parent index, but not at the subindex level. The S&P U.S. Fixed Rate Preferred Stock Index The S&P U.S. Fixed Rate Preferred Stock Index is comprised of preferred stocks that are included in the S&P U.S. Preferred Stock Index and pay dividends at a fixed rate. A Fixed Rate Preferred stock pays a fixed dividend for its entire term. The S&P U.S. Floating Rate Preferred Stock Index The S&P U.S. Floating Rate Preferred Stock Index is comprised of preferred stocks that are included in the S&P U.S. Preferred Stock Index and pay dividends at a floating rate. A Floating Rate Preferred stock pays a dividend rate that floats at a spread to a specified benchmark rate (Libor, Fed Funds or T-Bill rate). These securities may also include a rate floor or ceiling, whereby the rate is capped depending on if the benchmark rate moves below or above the floor or ceiling. The S&P U.S. Variable Rate Preferred Stock Index The S&P U.S. Variable Rate Preferred Stock Index is comprised of preferred stocks that are included in the S&P U.S. Preferred Stock Index and pay dividends at a variable rate. A Variable Rate Preferred stock pays a fixed dividend for a period until a trigger date is reached, at which point the dividend rate will float at a spread to a specified benchmark rate (Libor, Fed Funds or T-Bill rate) after that date. The S&P U.S. Investment Grade Preferred Stock Index The S&P U.S. Investment Grade Preferred Stock Index is comprised of preferred stocks that are included in the S&P U.S. Preferred Stock Index and are considered Investment Grade with a credit rating minimum of BBB-/Baa3/BBB- issued by S&P, Moody s, and Fitch. For an issue rated by S&P, Moody s, and Fitch, the lowest of the three ratings is used as the issue's credit rating. When there are two ratings, the lower of the two ratings must be considered investment grade. When there is only one rating, that rating must be considered investment grade. Defaulted securities are removed at the first rebalancing. S&P Dow Jones Indices: S&P U.S. Preferred Stock Index Methodology 6

8 The S&P U.S. High Yield Preferred Stock Index The S&P U.S. High Yield Preferred Stock Index is comprised of preferred stocks that are included in the S&P U.S. Preferred Stock Index and are considered High Yield with a credit rating maximum of BB+/Ba1/BB+ issued by S&P, Moody s, and Fitch. For an issue rated by S&P, Moody s, and Fitch, the lowest of the three ratings is used as the issue's credit rating. When there are two ratings, the lower of the two ratings must be considered high yield. When there is only one rating, that rating must be considered high yield. Defaulted securities are removed at the first rebalancing. The S&P Not Rated Preferred Stock Index The S&P Not Rated Preferred Stock Index is comprised of preferred stocks that are included in the S&P U.S. Preferred Stock Index and are not rated by any rating agency. The S&P U.S. Preferred REIT Stock Index The S&P U.S. Preferred REIT Stock Index is a subset of the S&P U.S. Preferred Stock Index. The index is designed to measure the performance of preferred stocks categorized as REITs according to the Global Industry Classification Standard (GICS ). The following preferred REIT stocks are included in the index: GICS Code Sub-Industry Description Diversified REITs Companies or trusts with significantly diversified operations across two or more property types Industrial REITs Companies or trusts engaged in the acquisition, development, ownership, leasing, management and operation of industrial properties. Includes companies operating industrial warehouses and distribution Mortgage REITs properties. Companies or trusts that service, originate, purchase and/or securitize residential and/or commercial mortgage loans. Includes trusts that invest in mortgage-backed securities and other mortgage related assets Hotel & Resort REITs Companies or trusts engaged in the acquisition, development, ownership, leasing, management and operation of hotel and resort properties Office REITs Companies or trusts engaged in the acquisition, development, Health Care REITs Residential REITs ownership, leasing, management and operation of office properties. Companies or trusts engaged in the acquisition, development, ownership, leasing, management and operation of properties serving the health care industry, including hospitals, nursing homes, and assisted living properties. Companies or trusts engaged in the acquisition, development, ownership, leasing, management and operation of residential properties including multi-family homes, apartments, manufactured homes and student housing properties Retail REITs Companies or trusts engaged in the acquisition, development, ownership, leasing, management and operation of shopping malls, outlet malls, neighborhood and community shopping centers Specialized REITs Companies or trusts engaged in the acquisition, development, ownership, leasing, management and operation of properties not classified elsewhere. Includes trusts that operate and invest in storage properties. It also includes REITs that do not generate a majority of their revenues and income from real estate rental and leasing operations. S&P Dow Jones Indices: S&P U.S. Preferred Stock Index Methodology 7

9 The S&P U.S. Preferred Infrastructure Stock Index The S&P U.S. Preferred Infrastructure Stock Index is a subset of the S&P U.S. Preferred Stock Index. The index is calculated using a float market capitalization weighted methodology, and as such adjustment factors used for issues in the parent index are not applied. The index is designed to measure the performance of preferred stocks categorized as Infrastructure according to selected Global Industry Classification Standard (GICS ) sub-industry groups. Preferred stocks from the following industry groups are included in the index: GICS Code Sub-Industry Description Oil & Gas Storage & Transportation Companies engaged in the storage and/or transportation of oil, gas and/or refined products. Includes diversified midstream natural gas companies facing competitive markets, oil and refined product pipelines, coal slurry pipelines and oil & gas shipping companies Airport Operators of airports and companies providing related services. Services Highways & Owners and operators of roads, tunnels and railtracks. Railtracks Marine Ports & Owners and operators of marine ports and related services. Services Electric Utilities Companies that produce or distribute electricity. Includes both nuclear and non-nuclear facilities Gas Utilities Companies whose main charter is to distribute and transmit natural and manufactured gas. Excludes companies primarily involved in gas exploration or production classified in the Oil & Gas Exploration & Production Sub-Industry. Also excludes diversified midstream natural gas companies classified in the Oil & Gas Storage & Transportation Sub-Industry Multi-Utilities Utility companies with significantly diversified activities in addition to core Electric Utility, Gas Utility and/or Water Utility operations Water Utilities Companies that purchase and redistribute water to the end-consumer. Includes large-scale water treatment systems. S&P Dow Jones Indices: S&P U.S. Preferred Stock Index Methodology 8

10 Index Construction Approaches The index is based on modified market capitalization weighting and calculated by the divisor methodology used in S&P Dow Jones equity indices. 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 an index, not for continued membership. As a result, an index constituent that appears to violate criteria for addition to that index will not be deleted unless ongoing conditions warrant an index change. Index Calculations The initial divisor is set to have a base index value as follows: Index Base Date Base Value S&P U.S. Preferred Stock Index 09/19/ S&P U.S. Fixed Rate Preferred Stock Index 09/19/ S&P U.S. Floating Rate Preferred Stock Index 09/17/ S&P U.S. Variable Rate Preferred Stock Index 09/21/ S&P U.S. Investment Grade Preferred Stock Index 09/19/ S&P U.S. High Yield Preferred Stock Index 09/19/ S&P U.S. Not Rated Preferred Stock Index 09/20/ S&P U.S. Preferred REIT Stock Index 09/19/ S&P U.S. Preferred Infrastructure Stock Index 09/17/ For an N stock index, the index value is simply the index market value divided by the index divisor. Index Value = Market Value Index Divisor (1) Index Market Value N = (Index Shares) (Pr ice) i i (2) i= 1 The index does not have a fixed number of stocks, so N varies from time to time. At each rebalancing, Index Shares are set to equal each constituent s outstanding shares as of the reference date. (Index Shares) i, after rebalancing = Modified Outstanding Shares i (3) S&P Dow Jones Indices: S&P U.S. Preferred Stock Index Methodology 9

11 Modified Outstanding Shares are the outstanding shares for the stock, except for certain large issuers where the combined weight of all issues by issuer is reduced so that an issuer s combined initial weight in the index falls to 10%. All other issuer weights are increased proportionately. At rebalancing, in order to maintain index series continuity, it is necessary to adjust the divisor. Therefore, (Index Value) before rebalancing = (Index Value) after rebalancing (4) (Divisor) after rebalancing = (Index Market Value) after rebalancing (Index Value) before rebalancing (5) Please refer to S&P Dow Jones Indices Index Mathematics document for more details. This index closely resembles the modified market capitalization weighted indices discussed in that document. S&P Dow Jones Indices: S&P U.S. Preferred Stock Index Methodology 10

12 Index Maintenance Rebalancing Index membership is reviewed quarterly. Rebalancing occurs after the close on the third Friday of January, April, July, and October. The reference date for additions and deletions is five business days prior to the first Friday of the rebalancing month. Share changes for existing index constituents occur semi-annually in January and July. Corporate Actions Corporate Action Shares called for cash or par value Shares called for conversion or automatically converted Delisting from primary exchange Special cash distribution Rights offering on preferred share class Preferred stock split Issuance of additional shares for the preferred share class in the index Partial call for cash or par value Adjustment Made to the Index If the issuer calls a constituent, it is removed from the index with five days notice at the closing price of the date at which it is dropped. Note that the issuer may choose not to call, in which case no change is necessary. The constituent is removed from the index with five days notice at the closing price of the date at which it is dropped. If the issuer chooses not to invoke the right to convert and conversion is not automatic, no change is necessary. The constituent is removed at the closing price of the delisting date (occasionally, a constituent may be removed at zero price). The price of the stock making the special payment is reduced by the per share special payment amount after the close of trading on the day before the ex-date. The price is adjusted to the Price of Parent shares minus (Price of Rights shares/rights Ratio). Index Shares are multiplied by and the price is divided by the split factor. None. Shares are revised semi-annually. On the redemption date, the constituent shares outstanding are reduced by the number of shares called and the constituent price is adjusted to the call price plus accrued interest. Divisor Adjustment? Yes Yes Yes Yes Yes No No Yes For more information, 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 U.S. Preferred Stock Index Methodology 11

13 Base Dates and History Availability Index history availability, base dates and base values are shown in the table below. Index Launch Date First Value Date Base Date Base Value S&P U.S. Preferred Stock Index 09/15/ /19/ /19/ S&P U.S. Fixed Rate Preferred Stock Index 10/25/ /19/ /19/ S&P U.S. Floating Rate Preferred Stock Index 10/25/ /17/ /17/ S&P U.S. Variable Rate Preferred Stock Index 10/25/ /21/ /21/ S&P U.S. Investment Grade Preferred Stock Index 07/21/ /19/ /19/ S&P U.S. High Yield Preferred Stock Index 07/21/ /19/ /19/ S&P U.S. Not Rated Preferred Stock Index 07/21/ /20/ /20/ S&P U.S. Preferred REIT Stock Index 11/24/ /19/ /19/ S&P U.S. Preferred Infrastructure Stock Index 03/16/ /17/ /17/ S&P Dow Jones Indices: S&P U.S. Preferred Stock Index Methodology 12

14 Index Data Total Return Indices The index has a total return counterpart, which assumes gross dividends are reinvested in the index after the close on the ex-date. On any given date t: Total Return Multiplier t = [Index Valuet + Index Dividend Index Valuet - 1 Points t] (6) Total Return Index Value t = (Total Return IndexValue t - 1) (Total Return Multiplier t) (7) Index Dividend Points t = N i= 1 (Index Shares) ( Ex dividends ) i, t i,t Divisort (8) 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 U.S. Preferred Stock Index Methodology 13

15 Index Governance Index Committee The S&P U.S. Preferred Stock Index and related sub-indices are maintained by the Americas Thematic and Strategy Index Committee. All committee members are full-time professional members of S&P Dow Jones Indices staff. The Index Committee meets monthly. At each meeting, the Index Committee reviews pending corporate actions that may affect index constituents, statistics comparing the composition of the indices to the market, companies that are being considered as candidates for addition to an 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 U.S. Preferred Stock Index Methodology 14

16 Index Policy Announcements Announcements of additions and deletions are made at 05:15 PM Eastern Time. Index rebalancing announcements are made to clients after the close of trading on the first Friday of the rebalancing month, approximately ten business days before the effective date. 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. Pro-forma Files In addition to the corporate events file (.SDE), S&P Dow Jones Indices provides constituent pro-forma files each time the indices rebalance. The pro-forma file is typically provided daily ten business days in advance of the rebalancing date and contains all constituents and their corresponding weights and index shares effective for the upcoming rebalancing. Please visit for a complete schedule of rebalancing timelines and proforma delivery times. Holiday Schedule The index is calculated when the U.S. equity markets are open. A complete holiday schedule for the year is available at S&P Dow Jones Indices: S&P U.S. Preferred Stock Index Methodology 15

17 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 indices 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 the 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, Real-Time Calculation Real-time, intra-day, index calculations are executed for the price return series, whenever any of the index s primary exchanges are open. Real-time indices are not restated. 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 U.S. Preferred Stock Index Methodology 16

18 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 U.S. Preferred Stock Index Total Return SPPREFTR Price Return SPPREF S&P U.S. Fixed Rate Preferred Stock Index Total Return SPPREFXT Price Return SPPREFX S&P U.S. Floating Rate Preferred Stock Index Total Return SPPREFRT Price Return SPPREFR S&P U.S. Variable Rate Preferred Stock Index Total Return SPPREVRT Price Return SPPREVR S&P U.S. Investment Grade Preferred Stock Index Total Return SPPREIGT Price Return SPPREIG S&P U.S. High Yield Preferred Stock Index Total Return SPPREHYT Price Return SPPREHY S&P U.S. Not Rated Preferred Stock Index Total Return SPPRENRT Price Return SPPRENR S&P U.S. Preferred REIT Stock Index Total Return SPREFRT Price Return SPPREFRS S&P U.S. Preferred Infrastructure Stock Index Total Return SPPRISUT Price Return SPPRISUP 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 U.S. Preferred Stock 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 Jason Satzinger Index Manager, U.S. & Canadian Indices Product Management J.R. Rieger Vice President, Fixed Income Indices Kevin Horan Director, Fixed Income 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 U.S. Preferred Stock Index Methodology 18

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