1741 SWITZERLAND MINIMUM VOLATILITY INDEX

Transcription

1 1741 Switzerland Index Series 1741 SWITZERLAND MINIMUM VOLATILITY INDEX Index rules Status as of 1 July 2015

2 1741 Switzerland Minimum Volatility Index 2 CONTENTS 1 Introduction 3 2 Index specifications 4 3 Index universe 5 4 Ordinary periodic rebalancing 6 5 Extraordinary rebalancing 8 6 Index calculation 9

3 1741 Switzerland Minimum Volatility Index 3 1 INTRODUCTION This document sets out the ground rules for the 1741 Switzerland Minimum Volatility Index. The 1741 Switzerland Minimum Volatility Index is an integral part of the 1741 Switzerland Index Series. The 1741 Switzerland Index Series offers investors access to eight different stock indices for the Swiss market. Each of the eight indices employs its own distinct weighting methodology. The 1741 Switzerland Index Series comprises the following indices: 1741 Switzerland Cap-Weighted Index 1741 Switzerland Equal-Weighted Index 1741 Switzerland Accounting-Based Index 1741 Switzerland Minimum-Volatility Index 1741 Switzerland Risk Parity Index 1741 Switzerland Value Index 1741 Switzerland Momentum Index 1741 Switzerland Quality Index

4 1741 Switzerland Minimum Volatility Index 4 2 INDEX SPECIFICATIONS 2.1 VERSIONS The 1741 Switzerland Minimum Volatility Index (the Index ) is calculated in three versions: a price index, a gross total return index and a net total return index. The index currency is the Swiss franc (CHF). 2.2 IDENTIFICATION CODES AND ISIN Name ISIN Bloomberg Reuters (RIC) 1741 Switzerland Minimum Volatility Price Index DE000SLA0DE9 n/a.1741chmvp 1741 Switzerland Minimum Volatility NTR Index DE000SLA0DF6 n/a.1741chmvn 1741 Switzerland Minimum Volatility GTR Index DE000SLA0DG4 1741CHMV Index.1741CHMVG 2.3 INITIAL VALUE The Index s initial value was set at 1,000 at the close of trading on its inception date, 31 December Historical data are available back to 31 December PRICES AND CALCULATION FREQUENCY The Index is continuously recalculated and published every 15 seconds between 9:00 a.m. and 5:35 p.m. on each trading day on the SIX Swiss Exchange. All index data are published by Boerse Stuttgart AG and distributed to all affiliated vendors. Each vendor decides for itself whether it will distribute/display 1741 Switzerland Minimum Volatility Index data via its information systems. The 1741 Switzerland Minimum Volatility Index is calculated on the basis of the share prices of its constituent stocks as quoted on the SIX Swiss Exchange. If a real-time price is not available via Reuters during the calculation period, the last available price or the closing price from Reuters for the last trading day is used for the calculation. 2.5 INDEX COMMITTEE A specially set-up index committee is responsible for determining and monitoring the composition of the 1741 Switzerland Minimum Volatility Index and for amending the index rules if circumstances render that necessary. The index committee consists of the employees of the Vescore Ltd. It is responsible for determining the constituents of the Index and for calculating their weights in the Index in accordance with the index rules. In addition, if extraordinary events affecting an index constituent occur (mergers, acquisitions, etc.; see chapter 5), the index committee makes decisions about whether this warrants corresponding adjustments to the composition of the 1741 Switzerland Minimum Volatility Index. The index rules establish a fundamental framework for dealing with such extraordinary events. If changes to the index rules prove necessary, the index committee is authorised to institute corresponding modifications. 2.6 INDEX CALCULATION The 1741 Switzerland Minimum Volatility Index is calculated and published by Solactive AG. 2.7 LICENSING The 1741 Switzerland Minimum Volatility Index is the intellectual property of Vescore Ltd. Use of the index requires that a corresponding licensing agreement be entered into with Vescore Ltd.

5 1741 Switzerland Minimum Volatility Index 5 3 INDEX UNIVERSE 3.1 ELIGIBLE STOCKS The selection pool of stocks eligible for inclusion in the Index consists of equity securities listed on the Swiss segment of the SIX Swiss Exchange that fulfil the following additional criteria: Free float The stock s free float must amount to at least 20% No investment companies Investment companies and exchange-listed investment funds are not eligible for inclusion in the Index Liquidity Only companies whose shares exhibit an average daily traded value (ADTV) greater than CHF 3 million are eligible for inclusion in the Index. If a company has more than one type of share class listed on the stock exchange, its ADTV is computed as the sum of the individual ADTVs for each (eligible) share class. If the history of a company s share trading volume amounts to less than six months (i.e. if its stock exchange listing took place less than six months ago), the ADTV calculation is based on the data points available. If the liquidity filter employed does not allow the stock universe described in paragraph to be assembled, the liquidity filter is lowered accordingly. 3.2 DETERMINATION OF THE 1741 SWITZERLAND UNIVERSE The following criteria for inclusion in the 1741 Switzerland universe apply to all of the indices in the 1741 Switzerland Index Series enumerated in chapter 1: Number of companies The 1741 Switzerland indices comprise the 50 largest exchange-listed companies in Switzerland based on the securities defined as eligible under the provisions of section Market capitalisation A company's total market capitalisation is the criterion used to select from the eligible companies. If a company has more than one type of share class, the market capitalisations of each share class are added together. A stock's market capitalisation is derived by multiplying the latest closing share price by the number of shares outstanding. The reference currency is Swiss francs (CHF) Average ranking On the reference date (see chapter 4), the 50 largest companies are determined as follows: 1. On the reference date, the selection pool is fixed to comprise the eligible companies defined in section On the basis of the aggregate market capitalisation, a ranking of the companies in the selection pool is compiled for each trading day of the preceding six months. If a company s daily market-cap history is shorter than six months, the ranking incorporates only the available data. 3. An arithmetic average of the daily rankings is computed for each company. 4. On the reference date, the 50 largest companies are selected on the basis of their mean rankings. If two or more companies occupy the 50th rank, the one with the highest market capitalisation on the reference date is included in the Index.

6 1741 Switzerland Minimum Volatility Index 6 4 ORDINARY PERIODIC REBALANCING 4.1 REFERENCE DATE AND REBALANCING DATE An ordinary rebalancing of the Index is undertaken four times a year on the basis of closing prices on the third Friday of March, June, September and December. The reference date for the rebalancing of the Index is the last trading day of the preceding month (i.e. the last trading day of February, May, August and November). Based on closing prices on the reference date, the index constituents are determined using the methodology described in chapter 3. The methodology described in section 4.2 is then used to calculate the new index weights on the basis of the available data up to the reference date. The new index constituents and index weights are disclosed at least two trading days before the rebalancing date. 4.2 WEIGHTING METHODOLOGY Determination of minimum volatility On reference date t, the weights of the constituents of the 1741 Switzerland Minimum-Volatility Index are set in a manner that minimises the ex-ante volatility of the Index under adherence to a minimum weighting for each company. The vector of index weights w opt (with a dimension of 50 1) is derived using the following formula: 1 1 w ooo = where 1 is a 50 1 vector of ones Determination of the covariance matrix The following procedure is used to determine the entries in the covariance matrix Σ: 1. For each company in the Index, a corresponding stock return time series over a time window T is utilised. If a company has more than one type of share class, the most liquid share class (determined on the basis of the average daily trading volume over the preceding 12 months) is used for the calculations. 2. For each individual time series, the mean value is extracted and then divided by the historical volatility. The standardised time series obtained this way form the basis for computing the empirical correlation matrix. 3. Next, a principal component analysis decomposes the correlation matrix into its eigenvalues and eigenvectors (formula: V ΛV = P, where V represents the eigenvector matrix and Λ is the diagonal matrix of eigenvalues). 4. The subsequent steps of the procedure take only eigenvalues that exceed a certain threshold value¹ into consideration, with the next step being to compute a new adjusted correlation matrix W >λmax Λ >λmax W >λmax = P that discards the small eigenvalues. 5. The entries in the diagonals of the correlation matrix are set at a value of The final covariance matrix Σ used to minimise volatility is composed of the empirical volatilities and the eigenvalue-adjusted correlation ρ i j Determination of weightings 7. Next, w opt is calculated using the formula defined in paragraph To avoid short-sale positions, values less than 0 in weight vector w opt are set at 0. Likewise, w i weights greater than 10% are set at 10% and the residual weight is apportioned to the other positions on a pro rata basis and the sum of the resulting w opt entries is scaled to ¹In accordance with eigenvalue distribution theory, only eigenvalues for which λ i > λ max = 1 + T / T /50 are taken into consideration in the subsequent steps of the weighting methodology.

7 1741 Switzerland Minimum Volatility Index 7 9. A minimum weight of 0.5% is added to each company. Weight w i of a company i is then calculated as follows: w i = w o pt,i The procedure described under steps 1 through 9 is run for the time windows T = 125 and T = The final index weight of company i as of reference day t then corresponds to an equally weighted linear combination of the individual weights:. w i,t = 0,5 w i,t + 0,5 w i,t Final weight at the securities level Lastly, the final index weight for each company is assigned to the corresponding eligible share classes. If a company has more than one type of share class, its weight is apportioned across the different eligible share classes on the basis of market capitalisation.

8 1741 Switzerland Minimum Volatility Index 8 5 EXTRAORDINARY REBALANCING This chapter sets out the rules for handling extraordinary capital events and corporate actions that involve an index constituent. 5.1 DELISTING A vacancy caused by a delisting does not get filled by a substitute company. The index weight of the delisted company is apportioned to the remaining companies in the Index on a pro rata basis (i.e. based on their weightings on the date of the delisting). If a company with more than one share class delists one of those share classes, the weight of the delisted share class is added to the weight of the company s remaining share classes. This transaction therefore does not affect the company s index weight. 5.2 ACQUISITION: A NON-INDEX CONSTITUENT ACQUIRES AN INDEX CONSTITUENT Such a transaction is treated like a delisting (see paragraph 5.1). 5.3 ACQUISITION: AN INDEX CONSTITUENT ACQUIRES A NON-INDEX CONSTITUENT The acquiring company stays in the Index with an unchanged weighting. 5.4 MERGERS AND ACQUISITIONS BETWEEN TWO INDEX CONSTITUENTS A vacancy caused by a merger or acquisition does not get filled by a substitute company. The weights of the index constituents involved are added together. 5.5 SPINOFF In the event of a spinoff, the spun-off company exits the index in principle and the existing company stays in the Index with an unchanged weighting. To effectuate this, the index committee as a general rule opts for one of the following practices: the spun-off company is reinvested in the existing company as a special dividend prior to the ex-date; the spun-off company is kept in the index for one day and is then reinvested in the existing company at the close of the first workday. Consequently, the spun-off company cannot be included in the Index until the next ordinary rebalancing date, provided that it fulfils the criteria for inclusion in the index universe. If neither of the practices described above is executable, the index committee decides on an alternative way to handle the spinoff. 5.6 INITIAL PUBLIC OFFERINGS (IPOs) No IPOs are added to the Index in between ordinary periodic rebalancings. They are instead assessed on the next ordinary index rebalancing date. However, the index committee reserves the right to deviate from this rule. 5.7 DISCRETIONARY INDEX COMMITTEE DECISIONS The index committee is authorised to deviate from the rules described above in the interests of the index if the situation so requires.

9 1741 Switzerland Minimum Volatility Index 9 6 CALCULATION OF THE INDEX 6.1 INDEX FORMULA The 1741 Switzerland Momentum Index is a Laspeyres base-weighted price index computed using the formula: n (x i,t p i,t ) Index t = i=1 where D t x i,t = the number of index shares of index constituent i on trading day t p i,t = the price of index constituent i on trading day t D t = the index divisor on trading day t The number of index shares is determined on the reference date on the basis of the index weights pursuant to section 4.2 using the equation: x i,t = w i,t p i,t Index t D t. 6.2 ADJUSTMENT OF THE INDEX DIVISOR The index divisor maintains the continuity of the index s value in the event of ordinary index rebalancings, capital events and corporate actions. In such instances, the divisor is adjusted while the index s value remains stable Ordinary adjustments After the close of trading on each adjustment day t, the index divisor is computed as follows: n (x i,t p i,t ) D t = i=1, Index t where x i,t stands for the new number of index shares. The new divisor goes into force as of the very next trading day Extraordinary adjustments In the case of capital events and corporate actions, the new index divisor is computed as follows: D t +1 = D t with n n (x i,t p i,t ) + (x i,t +1 p i,t +1 x i,t p i,t ) i=1 i=1 n (x i,t p i,t ) i=1 x i,t = the number of index shares of index constituent i on trading day t p i,t = the price of index constituent i on trading day t D t = the index divisor on trading day t x i,t +1 = the number of index shares of index constituent i on trading day t + 1 p i,t +1 = the hypothetical price of index constituent i on trading day t + 1 D t +1 = the index divisor on trading day t + 1

10 1741 Switzerland Minimum Volatility Index 10 CONTACT For information about the 1741 Switzerland indices, please contact: Vescore Ltd Multergasse 1-3 CH-9000 St. Gallen Important information: Exclusion of liability: This document was produced by Vescore Ltd (hereinafter "Vescore"). However, Vescore provides no warranty or guarantee for its content or completeness and accepts no responsibility for losses or damages of any kind that arise directly or indirectly from the use of this document or the information contained herein. The opinions expressed in this document are those of Vescore at the time the document was prepared and may change at any time and without notification. Unless otherwise stated, all figures are unaudited. For information purposes only: This document is provided for information purposes only and constitutes neither investment advice, nor an offer, nor a recommendation to buy financial instruments, nor does it exempt the recipient from the use of his own judgement. Target group: This document and the information contained herein are addressed exclusively to institutional investors who are not "US persons" as defined in Regulation S of the US Securities Act of Consequently, neither this document nor copies thereof may be sent or brought to the United States of America nor delivered to a US person. Restrictions: This document is expressly not addressed to individuals whose nationality, domicile or other attributes would exclude them from the receipt of such information based on current regulations. When in doubt, we recommend that you contact a local distribution office or credit institute.