Exclusion Benchmarks

An exclusion benchmark allows you to exclude segments or constituents from a vendor-supplied index. The exclusion benchmark then recalculates the weights at all levels and the returns above the exclusion level; the returns below are copied from the vendor-supplied index. For example, if the vendor-supplied index is MSCI EAFE, you may require custom benchmarks defined as the MSCI EAFE:

  • Excluding one or more segments, such as the UK.

  • Excluding one or more segments within segments, such as Consumer Durables within UK.

  • Excluding one or more constituents, such as Ford.

  • Excluding a combination of the above.

Calculate Weights and Returns

The following logic is used to determine the exclusion benchmark weights and returns when there is an exclusion set:

  1. Calculate the Total Excluded Weight = (Sum of all of the excluded weights):
    Excluded weights = (the newly assigned weight for the segment (0) – the vendor-supplied weight for the segment).
    For all excluded segments or securities, and all the segments and securities below the exclusion, the newly assigned weight is zero.

  2. Calculate the New Weights for all remaining (non excluded) nodes:
    Weight Change = –1*((Source weight * Total Excluded Weight) / (1 – (Total Excluded Weight * -1)))
    New Weight = Weight Change + Vendor Supplied Weight

  3. Copy all the security and segment returns, except those for the excluded level and above, from the source to the target (custom benchmark).

  4. Calculate the New Returns for the segments above the excluded segment.
    Re-proportion the New Weights (calculated in Step 2) to 100 percent for the target benchmark.
    Calculate the New Returns: Sum (Return * New Weight) of all the underlying segments or securities.

Exclusion Benchmark Example

For the purposes of example, assume the source index (vendor supplied index) and exclusions listed in the following table.

Dictionary Level

Exclude

Dictionary Level

Exclude

Total



Australia

X

Unknown

X

Canada



Foreign Gov.



UK



Petroleum



Unknown



US



Capital Goods



Technology



Petroleum



Exclusion benchmark data for the source index is listed in the following table.

Perf Rollup Returns ID

Description

ABAL

Return

Perf Rollup Returns ID

Description

ABAL

Return

1

Total

100.000000000000

2.337512614320

2

Total - Canada

0.186961567780

1.167482994596

3

Total - Canada - Foreign Govt.

0.186961567780

1.167482994596

4

Total - UK

21.654973670853

3.475919376493

5

Total - UK - Petroleum

16.356854652918

3.800720520895

6

Total - US

60.189112766022

2.149367889086

7

Total - US - Capital Goods

16.928285677007

0.954101703137

8

Total - US - Technology

17.933412208518

2.922672275580

9

Total - US - Petroleum

2.960736862858

3.768148149908

10

Total - US - Basic Industries

16.596291716438

2.654587081941

11

Total - Australia

17.968951995345

1.607967908012

12

Total - Australia - Unknown

17.968951995345

1.607967908012

13

Total - UK - Unknown

5.298119017935

2.473162531641

14

Total - US - Unknown

5.770386301202

0.968905089765

Exclusion benchmark resulting target data is listed in the following table.

Description

ABAL (%)

Return

Exclude

Weight Change(%)

New Weight(%)

Return Recalc

New Returns

Description

ABAL (%)

Return

Exclude

Weight Change(%)

New Weight(%)

Return Recalc

New Returns

Total

100.00

2.337513





100.00

2.497320

2.497320

Total - Canada

0.19

1.167483



0.04

0.23



1.167483

Total - Canada - Foreign Govt.

0.19

1.167483



0.04

0.23



1.167483

Total - UK

21.65

3.475919



4.74

26.40



3.475919

Total - UK - Petroleum

16.36

3.800721



3.58

19.94



3.800721

Total - US

60.19

2.149368



13.18

73.37



2.149368

Total - US - Capital Goods

16.93

0.954102



3.71

20.64



0.954102

Total - US - Technology

17.93

2.922672



3.93

21.86



2.922672

Total - US - Petroleum

2.96

3.768148



0.65

3.61



3.768148

Total - US - Basic Industries

16.60

2.654587



3.64

20.23



2.654587

Total - Australia

17.97

1.607968

X

X

X

X

X

Total - Australia - Unknown

17.97

1.607968

X

X

X

X

X

Total - UK - Unknown

5.30

2.473163



1.16

6.46



2.473163

Total - US - Unknown

5.77

0.968905



1.26

7.03



0.968905

Total Excluded Weight

-17.97













Complete the following:

  1. Calculate Total Excluded Weight: 0 – 17.97 = -17.97.

  2. Calculate the New Weights for remaining (non excluded) nodes. For example:
    Total UK Weight Change = 1*(21.65% * -17.97%) / (1 (-17.97 *-1)))= 4.74%
    Total UK New Weight = 4.74% + 21.65% = 26.40%

  3. Return for UK is copied = 3.475919.
    Returns above the excluded node are recalculated. In the example in the following table, total return only is recalculated.

Description

Return

New Weight

Target Return

Description

Return

New Weight

Target Return

Total





2.497319835

Total - Canada

1.167483

0.23%

0.002660876

Total - UK

3.475919

26.40%

0.917590893

Total - US

2.149368

73.37%

1.577068066