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Dow Jones Indexes, a leading global index provider, today announced the launch of the Dow Jones Canada Select Growth Index and Dow Jones Canada Select Value Index. The new indexes have been licensed to Barclays Global Investors Canada to underlie two exchange-traded funds (ETFs) expected to start trading this Friday, November 10, 2006 on the Toronto Stock Exchange.
The Dow Jones Canada Select Style Indexes measure the performance of large- and mid-cap stocks listed on the Toronto Stock Exchange that exhibit either “growth” or “value” style characteristics. Unlike the existing Dow Jones Canada TopCap Growth and TopCap Value Indexes, which are available to non-Canadian investors, the new indexes are designed to serve as broad, investable benchmarks for domestic use.
“The Dow Jones Canada Select Style Indexes provide local investors with a broad benchmark of liquid stocks in the growth and value categories. BGI’s decision to license the new indexes for their ETFs makes it even easier for Canadian residents who use these investment principles to access these market segments.” said Michael A. Petronella, president of Dow Jones Indexes/Ventures.
The Dow Jones Canada Select Style Indexes will include Canadian income trusts, which allow for only 49% of shares to be held by non-Canadian investors. To promote greater diversification, the weighting of each component of the Dow Jones Canada Select Growth and Select Value Indexes is capped at 10% of the respective index’s float-adjusted market capitalization.
The index universe for the Dow Jones Canada Select Growth and Dow Jones Canada Select Value indexes is defined as large- and mid-cap stocks—or stocks that reflect the top 90% of float-adjusted market capitalization—in the Dow Jones Canada Total Market Index, which seeks to capture 95% of the country’s float-adjusted market capitalization.
There are six style evaluation criteria used to determine whether a company should be classified as growth or value: projected price-to-earnings ratio (P/E), projected earnings growth, price-to-book ratio (P/B), dividend yield, trailing P/E and trailing earnings growth.
To be included in the indexes, stocks are ranked in each of the six categories and then undergo cluster analyses based on the six categories to create five clusters – strong growth, weak growth, strong value, weak value and neutral. Companies classified under the strong and weak growth categories become the components for the Dow Jones Canada Select Growth Index. Companies classified under the strong and weak value categories become the components of the Dow Jones Canada Select Value Index. Companies classified as neutral are excluded from the indexes.
As of October 31, 2006, there are 71 components in the Dow Jones Canada Select Growth Index and the top five companies by float-adjusted market capitalization are Suncor Energy (TSX: SU), Canadian Natural Resources Ltd. (TSX: CNQ), Barrick Gold Corp. (TSX: ABX), Canadian Imperial Bank of Commerce (TSX: CM) and Canadian National Railway Co. (TSX: CNR). There are 110 stocks in the Dow Jones Canada Select Value Index and the top five companies by float-adjusted market capitalization are Royal Bank of Canada (TSX: RY), Manulife Financial Corp. (TMFC), Bank of Nova Scotia (TSX: BNS), Toronto-Dominion Bank (TSX: TD) and EnCana Corp. (TSX: ECA).
The Dow Jones Canada Select Style Indexes are available in price and total return versions and are calculated in both Canadian and U.S. dollars. The indexes are reviewed semi-annually in March and September. For more information, including components, weightings and performance data, can be found at www.djindexes.com.
