Index Development and Testing

 

MFCo’s proprietary and custom indexes are developed, implemented, and maintained based on each index’s, or index suite’s, specific uniqueness which is directly related to the market, securities, or metrics each respective index product is intended to describe. MFCo indexes are intended and designed to accurately, sufficiently, and objectively measure or describe the performance of a specific market, risk variable, or economic condition for the purpose of benchmarking, referencing, or indicating return and/or risk observed within the directly relevant market sector and/or investment strategy.

 

The development, testing, and production of each index, or index suite, created shall include:

 

  • Rules and Methodology outlining all the guidelines, calculations, inputs, administrative framework, and definitions for each respective index

  • Factsheet summarizing the purpose of the index, historical performance, constituency inclusion and exclusion guidelines, and appropriate descriptions of the index’s purpose and intended use

  • Calculation Engine and Database(s) which electronically implement and calculate each index based on the formulas and rules as defined in the Rules and Methodology

  • Dissemination Method for index data and informational outputs to either the public or to index licensees

  • Back-Testing of the Rules and Methodology and Calculation Engine outputs for verification of calculation integrity

 

MFCo market-related indexes may be constructed from the domestic and international security universe, including equity and fixed income securities that are freely traded in nationally recognized exchanges, or well-supported over the counter markets. MFCo strives to develop indexes that are not only market relevant, but can feasibly be replicated or emulated by market participants. MFCo indexes are constructed, administered, and disseminated to either the public or index licensees, with the purpose of:

 

  • Applicability to the market or metrics being indexed

  • Relative usefulness for the intended market participants

  • Sustainable and methodical ongoing calculation and dissemination

  • Robust availability of required input data for each index

 

The design and resulting methodology for each new index MFCo created will be based on internal and external market feedback, as well as relevant usage of market expertise from MFCo and/or technical advisers that are subject matter experts in the applicable markets that each index is intended to describe. Indexes may include a registered investment company (RIC) compliant constrained version of the primary unconstrained, market value weighted index where applicable or on a custom basis.

 

For MFCo custom indexes, the above components will be incorporated and provided for each new custom index in collaboration with the respective client. The collaborative design process will include the vital aspects of each custom index including: sector(s) catered to, eligible security universe, inclusion/exclusion criteria, weighting and performance calculation methods, and dissemination plan and format. agreed upon with the client. The resulting new custom index, or indexes, may or may not be publicly disseminated based on the wishes of the respective client.

 

Whether and MFCo index, or index suite, is proprietary or custom, the same administrative and documentation requirements and implementations will be the same.

© 2020 Mark Fontanilla & Co., LLC