Dow Jones Islamic Market RBP U.S. 50 Index

From MarketsWiki
Jump to navigation Jump to search

The Dow Jones Islamic Market RBP U.S. 50 Index, launched Aug. 2, 2011 by Dow Jones Indexes, is designed to measure the largest 50 U.S. stocks ranked by Required Business Performance (RBP) probabilities supplied by Transparent Value, LLC that have first passed the screens for Shari’ah compliance.

RBP 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 index is part of 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.

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 percent 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 Jan. 8, 2010. Estimated back-tested daily historical index values are available back to Dec. 31, 1998, with a base value set at 1000.