Dow Jones Indexes, a leading global index provider, today announced the launch of the Dow Jones U.S. Contrarian Opportunities Index. 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 Dow Jones U.S. Contrarian Opportunities 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. "The Dow Jones U.S. Contrarian Opportunities Index is designed to systematically measure the performance of stocks that lag the broader market in terms of recent performance, but that outrank their peers based on fundamentals-based and other qualitative criteria."
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. 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 five percent of stocks are removed. 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.
The Dow Jones U.S. Contrarian Opportunities Index is equal weighted and reviewed semi-annually in January and July with changes taking effect in February and August respectively. The index is calculated in U.S. dollars and both price and total return versions are available. The total return index was up 62.38% in 2009, year-to-date it was up 10.43% as of March 31. Daily back-tested history for the Dow Jones U.S. Contrarian Opportunities Index is available back to January 1, 1999 and monthly back to December 31, 1991. Since its inception on December 31, 1991, the index is up 21.12% annualized based on estimated back-tested data.
For more information on the Dow Jones U.S. Contrarian Opportunities Index, please visit www.djindexes.com.
