Index Composition

May 05, 2021

A portfolio of securities that are selected based on the objective and rules as stated by the index methodology. Each index has its own proprietary calculation methodology and composition as defined by the index provider. This methodology is used to select and weight the constituent securities and then rebalance them according to predefined metrics. It is updated as necessary and as stated in the prospectus or categorized by XTF.

  • Index Composition (Traditional) – Traditionally weighted methodologies weight securities without attempting to generate excess returns. Examples include: Cap-weighed, Equal weighted, Price-weighted and Shares Out-weighted.
    • Cap-Weighted – The weight of each security will be assigned based on its market capitalization relative to the market capitalization of all securities in the basket.
    • Equal-Weighted – Each security in the basket will be of equal weight regardless of the price or market cap of the company.
    • Price-Weighted – The weight of each security will be based on its price regardless of the shares outstanding of the company.
    • Shares Out-Weighted – The weight of each security will be based on the number of shares outstanding regardless of market price.

     

  • Index Composition (Fundamental) – Fundamentally weighted methodologies weight securities based on fundamental metrics while attempting to generate excess returns. Examples include: Dividend-Yield weighted, Dividend-weighted, Revenue weighted and Various Fundamentals.
    • Dividend Yield-Weighted – The weight of each security will be based on the company’s annual dividend payments divided by the market cap of that security relative to the dividend yield of all the security’s in the basket.
    • Dividend-Weighted – The weight of each security will be based on the annual distribution (total dividend) amount paid by the firm in terms of dollars or appropriate currency.
    • Revenue-Weighted – The weight of each security will be based on the annual revenue generated by the company.
    • Various Fundamentals – The weight of each security will be based on some combination of fundamental weighting parameters.

     

  • Index Composition (Alternative) – Alternatively weighted methodologies weight securities based on non-traditional and non-fundamental metrics while usually attempting to generate excess returns. Examples include: Option Strategy, Production-Weighted, Volume-Weighted and Custom-Weighted.
    • Option Strategy – The weight of each security will be determined whereby a derivative of the underlying security (such as an option), rather than the security itself, plays a key role.
    • Production-Weighted – Similar to market capitalization, but usually used for a commodity. The weight of each security will be based on the average quantity of production of the underlying hard asset.
    • Volume-Weighted – The weight of each security will be determined by the average trading volume of the security over time.
    • Custom-Weighted – The weight of each security will be based on a set of rules that are either proprietary or do not fall into any other category.
    • Yield Curve Strategy – The weight of each security targets a specific level of sensitivity to changes in the yield curve. The yield curve depicts the relationship between U.S. Treasury note maturities and their corresponding yields.