EQM and XOUT unveil US equity index that exes out potentially vulnerable stocks

Sep 18th, 2019 | By | Category: ETF and Index News

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EQM Indexes has partnered with newly formed indexing firm XOUT Capital to create a US large-cap equity index that seeks to avoid companies that are being disadvantaged by technological innovation.

EQM and XOUT unveil US equity index that exes out potentially vulnerable stocks

EQM Indexes and XOUT Capital have unveiled a US equity index that exes out potentially vulnerable stocks.

While there are several existing indices that home in on the technological innovation theme by selecting firms that are proven disruptors in their fields, the XOUT US Large Cap Index takes a novel approach by focusing on filtering out, or “exing out”, firms that are being most disrupted.

The index has been licensed to GraniteShares to underlie the GraniteShares XOUT US Large Cap ETF (XOUT US) which is expected to list on NYSE Arca on 7 October 2019.

Index methodology

The index uses XOUT’s proprietary quantitative model to analyse a universe of the 500 largest stocks in the US, looking at seven factors to identify whether companies are being positively or negatively affected by technological innovation.

The seven factors are revenue growth, workforce growth, capital deployment, share repurchases, profitability and deposit growth (for banks), earning sentiment, and management performance.

Each stock is assigned a score based on a weighted average of its performance across the seven factors, relative to other firms in the universe. The 250 companies with the lowest scores are eliminated, and the remaining constituents are weighted by market capitalization. Reconstitution and rebalancing occur quarterly.

The resulting index has some notable sector differences when compared to the S&P 500. Its largest exposure is information technology at 32% (up from 22% in the S&P 500), followed by healthcare at 20% (vs. 14%), consumer discretionary at 14% (vs. 10%), communication services at 12% (vs. 10%), and industrials at 8% (vs. 9%). Financials is down from 13% in the S&P 500 to 6%, while consumer staples has dropped from 8% to 5% and energy from 5% to just 1%.

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