Methodology change | Solactive Canadian Fixed Income Select Indices | Effective date 19th June 2020
On the 19th June 2020, Solactive announces the following changes to the methodology of the following Indices (the ‘Affected Indices’):
|
NAME |
RIC |
ISIN |
|
Solactive Canadian Select Corporate Bond Index |
.SOLHCB |
DE000SLA3FC2 |
|
Solactive Canadian Select Corporate Bond PR Index |
.SOLHCBPR |
DE000SLA4FC0 |
|
Solactive Canadian Select Short Term Bond Index |
.SOLHSB |
DE000SLA3FD0 |
|
Solactive Canadian Select Short Term Bond PR Index |
.SOLHSBPR |
DE000SLA4FD8 |
|
Solactive Canadian Select Universe Bond Index |
.SOLHBB |
DE000SLA3FB4 |
|
Solactive Canadian Select Universe Bond PR Index |
.SOLHBBPR |
DE000SLA4FB2 |
Rationale for methodology change
As a result of rising turnover in the Affected Indices due to the constraints in liquidity, impaired tradability and higher transaction costs, Solactive considered a change in the selection criteria. This change was aimed to reduce turnover and turmoil in the Canadian market while maintaining the base objective of the index, which is the replication of the performance of the Canadian bond market denominated in CAD.
Changes to the Index Guideline
- Section 2.1.1 “Solactive Canadian Select Corporate Bond Index”
a) Broadening the amount of issues per issuer: Increase the issues per issuer from a maximum of 2 issues to a maximum of 4 issues and increasing ranking buffer rule.
Old Version:
2.1.1 Solactive Canadian Select Corporate Bond Index:
[…] For each issuer, the bonds are ranked according to their points (e.g. 1,2,3, etc.) and only the bonds with the first rank (=highest points) will be chosen as index components. If more than two bonds per issuer are ranked highest, bonds that are already part of the index composition will be chosen. If only one or none of the bonds with the highest rank are already part of the index composition, the bonds with the smaller absolute deviation on duration will be chosen. Assuming a bond had the highest rank in the last selection and only has the second rank in the current selection, it will be chosen as an index component. Respectively the bond with the first rank will not be included in such a case.
New Version:
2.1.1 Solactive Canadian Select Corporate Bond Index:
[…] For each issuer, the bonds are ranked according to their points (e.g. 1,2,3, etc.) and only the bonds with the first rank (=highest points) will be chosen as index components. For each issuer a maximum of 4 bonds will be considered to enter the index. If more than four bonds per issuer are ranked highest, bonds that are already part of the index composition will be chosen. If only one or none of the bonds with the highest rank are already part of the index composition, the bonds with the smaller absolute deviation on duration will be chosen. Assuming a bond had the highest rank in the last selection and only has the second rank or third rank in the current selection, it will be chosen as an index component. Respectively the bond with the first rank will not be included in such a case.
b) Change of the point system assigned based on absolute deviation on yield and duration:
Old version
|
Absolute deviation on yield: |
||||
|
From |
To |
Points |
||
|
0% |
10% |
10 |
||
|
10% |
15% |
5 |
||
|
15% |
30% |
2 |
||
|
30% |
45% |
1 |
||
|
45% |
300% |
0 |
||
|
|
||||
|
From |
To |
Points |
||
|
0% |
20% |
10 |
||
|
20% |
30% |
5 |
||
|
30% |
45% |
2 |
||
|
45% |
55% |
1 |
||
|
55% |
300% |
0 |
||
New version:
|
Absolute deviation on yield |
||
|
From |
To |
Points |
|
0% |
20% |
10 |
|
20% |
40% |
8 |
|
40% |
60% |
6 |
|
60% |
80% |
4 |
|
80% |
300% |
0 |
|
Absolute Deviation on duration: |
||
|
From |
To |
Points |
|
0% |
20% |
10 |
|
20% |
30% |
8 |
|
30% |
40% |
6 |
|
40% |
50% |
4 |
|
50% |
60% |
2 |
|
60% |
300% |
0 |
- Section 2.1.2. “Solactive Canadian Select Universe Bond Index”:
a) Increase the amount of issues per issuer from a minimum of 3 issues to a minimum of 4 issues for the issuers in the top 6.
Old Version:
2.1.2 Solactive Canadian Select Universe Bond Index:
[…] The maximum number per government/maturity identifier is determined according to the following criteria:
- Their government/maturity identifier belongs to the highest 6 weights in the Government Universe, then up to 10 bonds can be included in the index. If less than 3 bonds are selected as an index constituent, the selection automatically includes the bonds with the next highest criteria points.
New Version:
2.1.2 Solactive Canadian Select Universe Bond Index:
[…] The maximum number per government/maturity identifier is determined according to the following criteria:
- Their government/maturity identifier belongs to the highest 6 weights in the Government Universe, then up to 10 bonds and a minimum of 4 bonds can be included in the index. If less than 4 bonds are selected as an index constituent, the selection automatically includes the bonds with the next highest criteria points.
b) In the government side: Increase the amount of issues per issuer from a maximum of 2 issues to a maximum of 3 issues for the issuers that are not in the top 6.
Old Version:
2.1.2 Solactive Canadian Select Universe Bond Index:
[…] The maximum number per government/maturity identifier is determined according to the following criteria […]:
- Their government/maturity identifier does not belong to the highest 6 weights in the Government Universe then only 2 bonds per government/maturity identifier will be chosen.
New Version:
2.1.2 Solactive Canadian Select Universe Bond Index:
[…] The maximum number per government/maturity identifier is determined according to the following criteria […]:
- b) Their government/maturity identifier does not belong to the highest 6 weights in the Government Universe then only a maximum of 3 bonds per government/maturity identifier will be chosen.
c) Change of the point system assigned based on absolute deviation on yield and duration:
Old version
|
Absolute deviation on yield: |
||||
|
From |
To |
Points |
||
|
0% |
10% |
10 |
||
|
10% |
15% |
5 |
||
|
15% |
30% |
2 |
||
|
30% |
45% |
1 |
||
|
45% |
300% |
0 |
||
|
|
||||
|
From |
To |
Points |
||
|
0% |
20% |
10 |
||
|
20% |
30% |
5 |
||
|
30% |
45% |
2 |
||
|
45% |
55% |
1 |
||
|
55% |
300% |
0 |
||
New version:
|
Absolute deviation on yield |
||
|
From |
To |
Points |
|
0% |
20% |
10 |
|
20% |
40% |
8 |
|
40% |
60% |
6 |
|
60% |
80% |
4 |
|
80% |
300% |
0 |
|
Absolute Deviation on duration: |
||
|
From |
To |
Points |
|
0% |
20% |
10 |
|
20% |
30% |
8 |
|
30% |
40% |
6 |
|
40% |
50% |
4 |
|
50% |
60% |
2 |
|
60% |
300% |
0 |
d) Increasing ranking buffer rule
Old Version:
[…] For each government/maturity identifier, the bonds are ranked according to their points (e.g. 1,2,3, etc.) and only the bonds with the highest rank (=highest points) will be chosen as index components. Current constituents will be chosen first if there are multiple bonds which qualify per government/maturity identifier. When additional bonds are required those with the highest rank, which already part of the index composition and have the smaller absolute deviation will be chosen first. If a bond was ranked first in the last selection it will continue to be an index component as long as its rank is not reduced by more than one position. However, a bond ranked first at the last selection will not be included in the current selection if the maximum number of bonds per government/maturity identifier has been reached.
New Version:
[…] For each government/maturity identifier, the bonds are ranked according to their points (e.g. 1,2,3, etc.) and only the bonds with the highest rank (=highest points) will be chosen as index components. Current constituents will be chosen first if there are multiple bonds which qualify per government/maturity identifier. When additional bonds are required those with the highest rank, which already part of the index composition and have the smaller absolute deviation will be chosen first. If a bond was ranked first in the last selection it will continue to be an index component as long as its rank is not reduced by more than two positions. However, a bond ranked first at the last selection will not be included in the current selection if the maximum number of bonds per government/maturity identifier has been reached.
Implementation
The implementation of the changes will follow the schedule below:
- June selection: Increase the issues from 2 to 3 on the corporate side
- July selection: Increase the issues from 3 to 4 on the corporate side
- August selection: Implementation of the changes in the government side
Defined terms used in this announcement, but not defined herein, have the meaning assigned to them in the respective index guideline of the Affected Indices. The amended version of the index guideline will be available on the effective date.