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How are the indices weighted?

Answer

The two weight schemes available for our Market Indices are equal weights (EW) or market value weights (VW). The broad market and other market indices are equally weighted and market-value weighted.

In an equally-weighted index, all constituents carry the same weight when the performance and returns are calculated for that index. If we were to take an equally-weighted index from the infra100® series as an example, each constituent in these indices would be weighted as 1% regardless of asset value.

In value-weighted indices, each constituent influences the index in proportion to its value. The weights are calculated at each rebalancing date using the following formula:

 wi,t=Vi,tinVi,t

Where wi,t denotes the weight of constituent i at time t
Vi,t 
denotes index constituent i's estimate of fair value at time t.

 The fair value is then estimated using a consistent asset pricing methodology. Index-constituent value weights are calculated in the reference currency so that all constituent market values denominated in a different currency than the reference currency are converted accordingly.

Value weights are capped so that the individual weights cannot exceed a 5% cap. This prevents any single constituent from having a disproportionate influence on the index. A limit is imposed whereby an individual constituent's weight is capped at 5%. Thereafter, the weights of the remaining index constituents are increased as a consequence of reducing the weights of the larger companies. The weights of the uncapped constituents are then checked and, if they exceed 5%, they are then also capped at 5%. This is an iterative process that is repeated until no company exceeds 5%.

Things to consider

Hedged returns indices are also available upon request. For more information, please email info@scientificinfra.com

For more information, read about equity index methodology here

For more information, read about debt index methodology here

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