Two enhancements in Custom Series allow you to create Cap-Weighted Indices

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1

Dear All,

We released two enhancements in the Custom Series tool :

1 - New Chart transformation “Cumulative Product”: it multiplies the current value by the value before to create a compounded time series

2 - New function UnivCapAvg(“criteria”,“formula”): it calculates the cap-weighted average for the “formula” for the stocks that pass the “criteria”

With these additions you can easily create a Cap-weighted index for anything you like. We included two examples in the SERIES Samples to recreate the SP500 Total return and an Airline index.

THanks

PS: we have recently added a tutorial for Custom Series. Click the orange HELP tab

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Thank you. These should be useful!

Walter

3

Take care when using “cumulative product”: If the raw values to which “cumulative product” are applied are not well-behaved (i.e. generally grouped around 1), the series will escape to infinity or zero. Negative raw values will also produce a chaotic product series.

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@ P123 / Marco

Does that open a way to calculate the weighting of a sector within the S&P 500? Like for example Financials is 17% of the S&P 500 as of today.

I would like to have a rule that sets clear boundaries regarding the weighting of a sector within my portfolio. For example if Financials is 17%, then I cannot own more than 17% * 1.5 = 25.5% and I cannot have less than 17% * 1/1.5 = 11.33% of Financials in my portfolio. As I wrote once, the reason many financial institutions can’t really use P123 is because it doesn’t take into account weight allocations, which are one of the biggest constraints. Many firms cannot exceed or cannot own less than a certain amount inside a sector and unfortunately too many P123 models are overly concentrated into few sectors. Let’s take for example a portfolio manager working in a private firm managing US equities… Do you really think this guy will put hundreds of millions in an R2G that touts a so called “minimum volalitity” and only invests in 3 sectors? No, he might love the minimum liquidity idea but he will never be able to implement it other than as a satellite strategy. He will still need to invest in the 7 other sectors that the “minimum volatility” R2G doesn’t provide because the investors gave him money to have full exposure to US markets, not just to 3 sectors of the US equities.

If you can make GICS Level 1 Sector weighting PROXIES available inside the database ( on your end already calculated), it would be a grand feature. Just do it for the S&P 500 and for the S&P TSX and it would be perfect.

Thanks

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Hi,

Doesn’t the current custom series already support that?

SetVar(@Index,UnivSum("True","MktCap"))
SetVar(@Sector,UnivSum("Sector=FINANCIAL","MktCap"))
100*@Sector/@Index

Best,

Walter

6

Q,

In a 10 stock Sim use the buy rule; SecWeight < 11
in a 20 stock Sim use the buy rule; SecWeight < 22
Etc.

7

Q. different things.

What you need is a way either increase / decrease exposure to sectors using either i) more/less equal weighted positions ii) bigger/smaller positions. Since it has to probably do both, it’s likely a new “position sizing” algorithm specifically designed to track sector targets. More position sizing options is one of the projects we have in the pipeline, mostly just ideas right now.