Dow Jones Indexes, a leading global index provider, today announced the launch of the Dow Jones Islamic Market RBP U.S. 50 Index, a unique gauge designed to measure the largest 50 U.S. stocks ranked by RBP probabilities supplied by Transparent Value, LLC that have first passed the screens for Shari’ah compliance.
RBP, which stands for Required Business Performance, is calculated by Transparent Value by taking a reverse discounted cash flow approach to determine the future business performance required by a company to support its current stock price. RBP probabilities measure the likelihood that a company can deliver the required business performance identified by applying the methodology over specified time periods.
The Dow Jones Islamic Market RBP U.S. 50 Index is the latest addition to the Dow Jones RBP series of quantitative strategy indexes offered by Dow Jones Indexes and Transparent Value LLC, a New York-based asset management and financial information services company. The Dow Jones RBP Indexes are built upon patent-pending proprietary rules-based analytics supplied by Transparent Value.
“The Dow Jones Islamic Market RBP U.S. 50 Index demonstrates how we were able to effectively build on our existing relationship with Transparent Value alongside our success and experience with the Dow Jones Islamic Market Index family to produce a truly innovative market measure,” said Michael A. Petronella, President, Dow Jones Indexes.
Julian Koski, Managing Director and Co-Chief Executive Officer of Transparent Value, said: “By merging Shari’ah-compliance with RBP’s methodology, the Dow Jones Islamic Market RBP U.S. 50 Index offers institutional investors a unique investment tool. This new index is the latest example of the Dow Jones RBP Index family’s commitment to deliver creative measurements of world markets.”
The index universe represents approximately the top 90% of U.S. stocks by float-adjusted market capitalization; it includes all the companies within the Dow Jones U.S. Large-Cap Index and the Dow Jones U.S. Mid-Cap Index.
To be eligible for inclusion in the Dow Jones Islamic Market RBP U.S. 50 Index, components must pass Dow Jones Indexes’ proprietary screens used in the Dow Jones Islamic Market Index methodology. Those screens prohibit companies from engaging in business lines including alcohol, tobacco, pork-related products, conventional financial services, defense/weapons and certain types of entertainment; companies must also pass Shari’ah financial screens by reporting ratios of less than 33% in: debt over market capitalization, cash plus interest-bearing securities over market capitalization, and accounts receivables over market capitalization. An independent Shari’ah Supervisory Board counsels Dow Jones Indexes on matters related to the compliance of index-eligible companies.
After these initial screenings, stocks are selected based on RBP’s methodology applied over specified time periods. Beta and momentum are also used as selection criteria, aiming to mitigate systemic and behavioral volatility.
The Dow Jones Islamic Market RBP U.S. 50 Index components are weighted by their RBP probabilities. The index is reviewed quarterly; calculation began on January 8, 2010. Eastimated back-tested daily historical index values are available back to December 31, 1998, with a base value set at 1000.
The Dow Jones Islamic Market RBP U.S. 50 Index is the fifth addition to the Dow Jones RBP Indexes family in 2011. In April, three large-cap “style” indexes of growth and value stocks were launched, in addition to the series’ first index to utilize dividends to select and weight companies.
Beginning with the 1999 introduction of its Dow Jones Islamic Market Indexes series, Dow Jones Indexes has been a pioneer in providing Shari’ah compliant indexes. In 2011 alone, Dow Jones Indexes has been named “Best Islamic Index Provider” by Islamic Business & Finance; “Islamic Index Provider of the Year in Asia” by Asia Asset Management; and “Best Shari’ah Compliant Index Provider of the Year” by Global Finance.