Announcement Methodology Change | Solactive China Electric Vehicle Index | Effective Date 26/06/2020
Today, on the 25/06/2020, Solactive announces the following changes to the methodology of the following Indices (the ‘Affected Indices):
Solactive China Electric Vehicle Index PR
Solactive China Electric Vehicle Index NTR
Solactive China Electric Vehicle Index TR
Rationale for Proposed Changes
Solactive AG deems the current Index Methodology lacking in regards to the corporate governance risk of the companies included in the index universe. Companies with a recent IPO are less thoroughly analyzed by the market and are therefore, to a higher degree, subject to potential corporate governance risk. In order to reflect these economic circumstances, Solactive AG decided to apply one additional criterium, only including securities in index universe with the first trade date not within the past six months from the Selection Day.
Secondly, Solactive AG deems the current Index Methodology lacks the diversification of the index and the accurate representation of the Index Objective. Hence, Solactive AG decided to add an additional industry to the list of eligible industries, “Chemicals: Major Diversified”. The industry is particularly relevant to electric vehicles, as batteries – one of the core components of EV- are essentially a chemical product. Additionally, the weight cap in the index will be increased from 7% to 9%. Several large market leaders have emerged in the electric vehicle industries and underweighting (compared with simply free-float market cap weight) such leaders while overweighting the smaller companies would deteriorate the index performance compared to actual market conditions and the impact of larger companies.
Thirdly, after revision by the Oversight Committee, the negative keywords used in the index were updated.
Proposed Changes to the Index Guideline
The following Methodology changes are proposed in the following points of the Index Guideline (ordered in accordance with the numbering of the affected sections):
- Chapter 2.1 Index Universe Requirements
a. an additional bullet will be included after point 3.f):
i) Chemicals: Major Diversified
b. an additional point will be included between points 5. and 6:
6. The first trade date of the security should not be within the last six months until and including the Selection Day.
c. point 8. will be changed as follows:
8. The companies are ranked in their industries, as defined in step 3, according to Total Market Capitalization. The top 8 per industry are selected and constitute the INDEX UNIVERSE.
Therefore, chapter 2.1. Index Universe Requirements will read:
The Index Universe is comprised of all financial instruments which fulfill the below requirements (the “Index Universe Requirements“):
- Headquartered in China or Hong Kong
- Should be listed on one of the following exchanges:
- Hong Kong: HKEX
- Stock Connect: Shanghai and Shenzhen
- US: NYSE and NASDAQ
- Should be from the following industries according to the FactSet Industries and Economic Sectors:
- Electrical Products
- Motor Vehicles
- Auto Parts: OEM
- Industrial Machinery
- Chemicals: Specialty
- Industrial Specialties
- Chemicals: Major Diversified
- From the list of constituents remaining after step 3, only companies with significant exposure to electric vehicles are eligible. Identification is based on the company description included in FactSet, and keywords that indicate significant exposure to electric vehicles and its related supply chain. The keywords are subject to regular revision by the OVERSIGHT COMMITTEE
- As an exclusion policy, companies with insignificant exposure to electric vehicles and its related supply chain will be identified and removed from the list of eligible constituents after step 4 above. Identification is based on the company description included in FactSet and the “exclusion” keywords indicating limited or no exposure to electric vehicles and its related supply chain. The keywords are subject to regular revision by the OVERSIGHT COMMITTEE
- The first trade date of the security should not be within the last six months until and including the Selection Day.
- Should have “AVERAGE DAILY VALUE TRADED” of at least HKD 20 million over 6 months prior to and including the Selection Day
- If a company has more than one share classes then the most liquid share class is eligible
- The companies are ranked in their industries, as defined in step 3, according to “Total Market Capitalization”. The top 8 per industry are selected and constitute the INDEX UNIVERSE
- Should less than 15 securities fulfill the requirements until and including step 9, the largest security/securities per Total Market Capitalization that does/do not fulfill the requirements until and including step 8, but fulfills/fulfill the requirements until and including step 7, is/are selected until the Index Universe consists of 15 securities
The determination of the Index Universe is fully rule-based and the Index Administrator cannot make any discretionary decisions.
- Chapter 2.3 Weighting of the Index Components
On each Selection Day each Index Component is assigned a weight according to Free Float Market Capitalization such that the weight of the company does not exceed 7%.
On each Selection Day each Index Component is assigned a weight according to Free Float Market Capitalization such that the weight of the company does not exceed 9%. The excess weight will be distributed to the other Index Components pro-rata in an iterative process.
Implementation of the changes
The changes mentioned above become effective on 26th June 2020.