Dow Jones Indexes and financial information services provider Transparent Value have launched the Dow Jones Required Business Performance Index series, which measures the likelihood that a company can deliver the performance required to support its current stock price using Transparent Value's proprietary RBP methodology.
The Dow Jones RBP Large-Cap 130/30 Indexes, the first indices in the series, use the RBP probability metrics to create 130/30 investment strategy indices based on US large-cap stocks. The new indices are designed to serve as the basis for financial products.
'The Dow Jones RBP Indexes are part of the next generation of intelligent index design,' says Michael Petronella, president of Dow Jones Indexes. 'The RBP approach uses an innovative transparent and rules-based methodology that serves as a superior basis for a 130/30 index.'
Julian Koski, co-founder of Transparent Value, says: 'We embrace a rules-based approach to investing, just as Dow Jones Indexes does in developing indexes. The central idea behind the RBP methodology is to help investors objectively understand the valuation of publicly-traded companies.
'We believe the fundamental investment question is not whether a company is under- or overvalued, but whether the management of that company can deliver the required business performance to support its stock price.'
The RBP Indexes are quantitative strategy indices developed and calculated by Dow Jones Indexes using analytics supplied by Transparent Value. The Dow Jones RBP Large-Cap 130/30 Index comprises all 750 stocks included in the Dow Jones Wilshire U.S. Large-Cap Index, with RBP probability scores calculated by Transparent Value.
The 30 stocks with the highest scores become components of the Dow Jones RBP Large-Cap Leading 30 Index, while the 30 stocks with the lowest RBP probability scores become components in the Dow Jones RBP Large-Cap Lagging 30 Index. To qualify for inclusion in the Leading and Lagging 30 indices, component stocks must have a three-month average daily trading volume of at least USD2.5m.
The Dow Jones RBP Large-Cap 130/30 Index measures the performance of the 750 stocks in the Dow Jones Wilshire U.S. Large-Cap Index as well as an additional 30 per cent long position in the Leading 30 Index and 30 per cent inverse exposure to the Lagging 30 Index.
Also available are the Large-Cap Growth 130/30 Index and Large-Cap Value 130/30 Index, which follow the same methodology as the broader index. They are derived from the Dow Jones Wilshire U.S. Large-Cap Growth Index and Dow Jones Wilshire U.S. Large-Cap Value Index respectively.
The Large-Cap 130/30 Index, Large-Cap Leading 30 Index and Large-Cap Lagging 30 Index are rebalanced quarterly. The 750 stocks that make up the core of the index are weighted by float-adjusted market capitalisation, while components of the leading and lagging sub-indices are equal-weighted. Back-tested estimated daily history is available back to December 31, 2004.
Best known for the Dow Jones Industrial Average, Dow Jones Indexes is also co-owner of the Dow Jones Stoxx indices and together with Wilshire Associates it provides the Dow Jones Wilshire Global Index family, which is anchored by the Dow Jones Wilshire 5000 and covers more than 12,000 securities in 59 markets. Dow Jones Indexes also maintains various alternative indices, including measures of the hedge fund and commodity markets.
Transparent Value is an asset management and financial information services that offers customised asset management and decision support tools based on the Required Business Performance methodology to individual and institutional investors worldwide.