Jones news release said the new rules-based index seeks to measure a contrarian
investment strategy by focusing on companies with strong recent fundamentals
but a lagging three-year-trailing return.
The Index has been licensed to Javelin Investment Management to underlie an exchange-traded fund (ETF). The ETF will be available tomorrow at NYSE Euronext.
“The Dow Jones U.S. Contrarian Opportunity Index allows market participants for the first time to track a contrarian investment strategy with a rules-based tool,” said Michael A. Petronella, president designate, Dow Jones Indexes, in the news release.
The universe for the Dow Jones U.S. Contrarian Opportunities Index is the Dow Jones U.S. Broad Stock Market Index, which measures the performance of the largest 2,500 U.S. stocks by float-adjusted market capitalization, the announcement said.
These stocks are ranked in descending order by their three-year trailing total returns, and the 1,250 best-performing stocks are removed. The remaining stocks are then ranked in descending order by float-adjusted market capitalization, and the lowest 5% of stocks are removed.
Jones said the remaining companies join the current index components to form
the selection pool and are further ranked by 10 qualitative financial criteria:
long-term expected profit growth; enterprise value to EBITDA;
earnings-per-share revisions for the current fiscal quarter; earnings-per-share
revisions for the next quarter; price/cash flow ratio to five-year median;
cash-flow change in the previous quarter; price/earnings ratio; price/free cash
flow ratio; total return for the past six months; and five-year sales growth.
For each of the 10 factors, companies are scored based on their ranking; these scores are then summed in a final composite rank. Any existing component company whose composite rank falls from 1-175 will remain in the index, and non-component companies are selected based on composite rank until there are 125 stocks. Sector weighting is capped at 30% of the index.
More information is at www.djindexes.com.