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• Create a Static Floating Weight Benchmark
• Create an Active Weight Benchmark

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Calculate Weights and Returns

You can configure a blended benchmark so that PACE determines the weights to use, where the weights are calculated based on the component index returns between reset dates. This type of benchmark is called floating weight blended benchmark. An example of how PACE calculates the weights and returns for these types of benchmarks follows.

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Finally, after the system populates the Custom Index Attributes table, the entity build procedure begins. These two steps cannot be separated.

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Rebalance Floating Weights Using Reset Dates

Behind the scenes, the system uses the following two columns in the Custom Index Attributes table for resetting the dates:

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You cannot change the target dictionary and the type of custom benchmark in the Custom Index Attributes tab after you create the entity. These items are dimmed in the Custom Index Attributes tab.

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Floating Weight Blended Benchmark Example

The following example shows how the floating weight blended benchmark is calculated:

1. Calculate the drift numbers.
   Index 1  (index rtn/100) * current weight = drift #1 (15/100) * 50 = 7.5
   Index 2  (index 2 rtn/100) * current weight = drift #2 (-10/100) * 50 = -5
   
   
2. Calculate the new weights.
   Previous weight (current weight from previous step) + Drift #1 = New weight Index 1 50 + 7.5 = 57.5
   Previous weight (current weight from previous step) + Drift #2 = New weight Index 2 50 + (-5) = 45
   New weight Index 1 + New weight Index 2 = Total new weight 57.5 + 45 = 102.5
   
   
3. Return the numbers back to a 100 percent ratio.
   Weights must equal 100 for the custom index builder process.
   New weight Index 1/Total New weight * 100
   57.5/102.5 = x/100 x = 56.1
   New weight Index 2/Total New weight * 100
   45/102.5 = x/100 x= 43.9

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3-Month Floating Weight Blended Benchmark Example

Index returns for this example are listed in the following table. Calculations for this data are described below.

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Month 1 Floating Weight Calculation Nonreset (February) Example

In the example defined in the following table, weights for 2/28/2002 are calculated using weights and returns from 1/31/2002.

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Month 2 Floating Weight Calculation Nonreset (March) Example

In the example defined in the following table, the date of 3/31/2002 is calculated using the weights and the return for 2/28/2002.

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Month 3 Floating Weight Calculation Reset (April) Example

Given that 4/30/2002 is a reset date as set up in the business calendar, then the weights for 4/30 are equal to the weights on the last reset date of 1/31/2002. The example is described in the following table.

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Configure a Floating Weight Blended Benchmark

To configure a floating weight blended benchmark:

1. Set up the Business Calendar to identify reset dates for the benchmark.
2. Set up the date rule.
3. Create the new entity for the floating weight blended benchmark.

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Set Up the Business Calendar

Weights float until you specify a reset date. A reset date is a date on which the system no longer floats from previous values but resets to the original or last updated weights for the benchmark in the Custom Index Attributes dialog box. That is, on the reset day, the weights reset to those weights associated with the most recent date for the custom benchmark definition where the RESET_FLAG = Y in the CUSTOM_INDEX_ATTRIBUTES table for that specific entity. For more information about the RESET_FLAG, see Rebalance Floating Weights Using Reset Dates.

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1. From any Eagle window, click the Eagle Navigator button to access the Eagle Navigator.
2. Enter Sources in the Start Search text box.
3. Click the Sources (Reporting Center) link to access the Sources workspace.
   You see the Sources window.
4. Click Add.
   The Add Source Details dialog box appears.
5. Add a new interface (source) with a meaningful name such as Source for Floating Weight Reset Dates. Under Available Feed Types, select Performance. See the following figure.
   
6. Update the Business Calendar for the source from any Eagle window, click the Eagle Navigator button to access the Eagle Navigator. Enter Business Calendar in the Start Search text box.
7. Click the Business Calendar (System Management Center) link to access the Business Calendar workspace.
8. Choose the source created for the floating weight blended benchmarks and select the check boxes, under the Daily column, for the reset dates. Make sure to use the Daily column — the program only uses this column. For example, if you reset on a quarterly basis, then only select four dates with a check mark.
9. Click Save before exiting.

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Set Up the Date Rule

You can set up the date rule for a floating weight blended benchmark. is located in PACE Reporting under the General Reporting option.

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Partially Filled Dictionary

Optimally, you would assign a benchmark for each node of the reference entity. But this is not always the case. It is conceivable that benchmarks will not be assigned to some of the Reference entity nodes. Consider the example in the following table.

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• Total -->  Common S&P 500 – 40%
• Total --> 144A --> Health Care ML Health Care Index – 10%
• Total  --> Corp L AGG – 12%
• Total --> Gov L AGG – 8%

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Change Weights on an Ad Hoc Basis after Initial Setup

In most cases, you need to manually enter weights only when you first set up the floating weight benchmark. After that, the system calculates the floating weights for you, and the system resets weights automatically at the appropriate times. However, if you need to manually change a weight on an ad hoc basis at a later date, you can do so.

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