Faith Based Indexing and the Dharma Approach


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Talk given by Sumeet Nihalani
Dow Jones Indexes

May, 2008
TBLI Conference, Bangkok, Thailand

Published in: Business, Economy & Finance
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Faith Based Indexing and the Dharma Approach

  1. 1. Faith Based Indexing and the Dharma Approach Sumeet Nihalani Dow Jones Indexes May, 2008 TBLI Conference, Bangkok, Thailand
  3. 3. INTRODUCTION: DOW JONES INDEXES Dow Jones Indexes is part of Dow Jones & Company which is a subsidiary of News Corporation. Dow Jones is a leading provider of global business news and information services, that publishes The Wall Street Journal, Barron's, MarketWatch and the Far Eastern Economic Review. Its Enterprise Media Group includes Dow Jones Newswires, Factiva, Dow Jones Client Solutions, Dow Jones Indexes and Dow Jones Financial Information Services. Its Local Media Group operates community-based information franchises. Dow Jones owns 33% of STOXX Ltd.a leading index provider in Europe. Dow Jones created the world’s first market benchmark, the Dow Jones Industrial Average and the world’s first faith-based indexes the Dow Jones Islamic Market Indexes. Dow Jones Indexes is an independent full-service provider, supplying accurate, reliable and transparent index data. Dow Jones Indexes develops, maintains and licenses equity, commodity, hedge fund, mixed asset classes and REIT indexes for use as benchmarks and as the basis of investment products.
  4. 4. INTRODUCTION: DOW JONES INDEXES <ul><li>Most recognized index provider globally. </li></ul><ul><li>More than 170 people globally support the Dow Jones and Dow Jones STOXX indexes. </li></ul><ul><li>Offices in Asia (Beijing, Hong Kong, Singapore), Europe (Frankfurt, London, Madrid, Paris, Stockholm, Zurich), U.S. (Boston, Los Angeles, New York, Princeton), South America (Mexico City, Santiago, São Paulo), Middle-East (Dubai) </li></ul><ul><li>Dow Jones Indexes and STOXX Ltd. publish more than 130,000 indexes. The Dow Jones STOXX index family is the European component of the Dow Jones Global Index family. </li></ul><ul><li>More than 800 licensees worldwide on the Dow Jones and Dow Jones STOXX indexes with more than 19,000 products issued. </li></ul><ul><li>More than $2.1 trillion assets tied to the Dow Jones and Dow Jones STOXX indexes as of October 2007. </li></ul><ul><li>In 1997, STOXX Ltd. was formed by Deutsche Börse AG, Dow Jones & Company and SWX Group; On February 28, 1998 the Dow Jones STOXX indexes were launched. </li></ul>
  5. 5. <ul><li>FAMILY OF OVER 130,000 INDEXES INCLUDES: </li></ul><ul><li>Equity Indexes Dow Jones Averages </li></ul><ul><li>Dow Jones Global Index </li></ul><ul><li>Dow Jones STOXX Total Market Index </li></ul><ul><li>Dow Jones Wilshire Global Total Market Index </li></ul><ul><li>Dow Jones Islamic Market Indexes </li></ul><ul><li>Dow Jones Dharma Indexes </li></ul><ul><li>Dow Jones & Dow Jones STOXX Select Dividend Indexes </li></ul><ul><li> </li></ul><ul><li>Alternative Investment Indexes Dow Jones AIG-Community Index </li></ul><ul><li>Dow Jones Hedge Fund Strategy Benchmarks </li></ul><ul><li>Fixed Income Indexes Dow Jones Corporate Bond Index </li></ul><ul><li>Mixed Asset Class Index Dow Jones Target Date Indexes </li></ul><ul><li>Real Estate Investment Trust Dow Jones REIT Composite Index </li></ul><ul><li>Indexes Dow Jones Wilshire REIT Index </li></ul><ul><li>Dow Jones STOXX 600 Real Estate Index </li></ul>INTRODUCTION: INDEX FAMILY OVERVIEW
  6. 6. <ul><li>FIVE DIMENSIONS </li></ul><ul><li>Regions Sectors Size </li></ul><ul><li>- Europe 4 levels of sector classification 3 sizes: </li></ul><ul><li>- America - 10 Industries Total Market Indexes </li></ul><ul><li>- Asia - 18 Supersectors - Large Cap Indexes </li></ul><ul><li>- Global - 39 Sectors - Mid Cap Indexes </li></ul><ul><li>- Emerging Markets - 104 Subsectors - Small Cap Indexes </li></ul><ul><li>Style Themes </li></ul><ul><li>Growth Sustainability </li></ul><ul><li>Value Islamic </li></ul><ul><li>( Style indexes are calculated Dharma (launched January 15, 2008) </li></ul><ul><li>for each of the sizes ) Dividends </li></ul><ul><li>Volatility </li></ul><ul><li>Real Estate </li></ul><ul><li>Sport (Football, Grand Prix, Summer Games 2008) </li></ul>INTRODUCTION: INDEX FAMILY OVERVIEW
  7. 7. <ul><li>Dow Jones Indexes pioneered faith based investing with the </li></ul><ul><li>launch of the Dow Jones Islamic Market Indexes </li></ul><ul><li>T he largest, most visible, widely used set of Sharia’h-compliant indexes in the world </li></ul><ul><li>More than 70 indexes: </li></ul><ul><ul><li>Country and Regional </li></ul></ul><ul><ul><li>Sector </li></ul></ul><ul><ul><li>Size (cap-range) </li></ul></ul><ul><ul><li>Specialty Indexes: Dow Jones Citigroup Sukuk Index, Dow Jones Islamic Market China Offshore Indexes, Dow Jones DFM Indexes </li></ul></ul><ul><li>Winner of numerous awards on the quality of Islamic indexes and industry contribution </li></ul>DOW JONES & FAITH BASED INDEXES
  8. 8. DOW JONES DHARMA INDEXES <ul><li>OBJECTIVE </li></ul><ul><li>The Dow Jones Dharma Indexes are the first faith-based indexes created to measure equities in compliance with the value systems and principles of Dharmic religions, especially Hinduism and Buddhism. </li></ul><ul><li>The Dow Jones Dharma Indexes are designed to underlie financial products such as funds, structured products and exchange-traded funds. </li></ul><ul><li>The Dow Jones Dharma family includes five indexes: </li></ul><ul><ul><li>Dow Jones Dharma Global Index (USD) </li></ul></ul><ul><ul><li>Dow Jones Dharma US Index (USD) </li></ul></ul><ul><ul><li>Dow Jones Dharma UK Index (GBP & USD) </li></ul></ul><ul><ul><li>Dow Jones Dharma Japan Index (JPY & USD) </li></ul></ul><ul><ul><li>Dow Jones Dharma India Index (INR & USD) </li></ul></ul>
  9. 9. DHARMA – THE CONCEPT <ul><li>Dharma derives form the sanskrit root dhri “to uphold”, “ to sustain”. </li></ul><ul><li>Variously translated Dharma relates with “duty”, “ethics”, “law” and “teachings” </li></ul><ul><li>The following values have key relevance to Dharma investing: </li></ul><ul><li>Hinduism </li></ul><ul><li>Ahimsa, or non-aggression </li></ul><ul><li>Loka-samgraha , or the concept of stewardship </li></ul><ul><li>Buddhism </li></ul><ul><li>Karuna, undertaking to avoid of any intentional killing of any living being </li></ul><ul><li>Metta , or loving kindness and generosity </li></ul>
  10. 10. DHARMA APPLIED <ul><li>Application of the Principles of Ahimsa/Karuna </li></ul><ul><li>The guiding principles of Ahimsa and Karuna exclude industries involved with unnecessary violence. </li></ul><ul><li>As an example industries related to animal slaughter - such as food industries using meat products are excluded. Also excluded is the Defence and armament industry. </li></ul><ul><li>Application of the Principles of Loka-samgraha/Metta </li></ul><ul><li>The principles of Loka-samgraha and Metta embrace the tenets of corporate governance, environmental responsibility and stewardship. </li></ul><ul><li>As such, these principles require exclusion of companies that could be considered to have a significant negative impact on the environment or society. </li></ul><ul><li>A unique combination of positive (environmental, social, governance) and negative (traditional sin sector) filters – with broad appeal to both religious and secular investors. </li></ul>
  11. 11. <ul><li>METHODOLOGY </li></ul><ul><li>Component Selection </li></ul><ul><li>The top 5000 components of the Dow Jones Wilshire Global Total Market Index as measured by free float market capitalization, plus all of the components in the Dow Jones Wilshire Country Indexes. </li></ul><ul><li>Dow Jones Dharma Index components are selected by s creening for business activities, industry, environmental, corporate governance and qualitative criteria that are not suitable for Dharmic investment purposes </li></ul><ul><li>Index Characteristics </li></ul><ul><li>Internationally accepted methodology for construction, calculation and dissemination </li></ul><ul><li>Rules-based and investable </li></ul><ul><li>Disseminated globally </li></ul><ul><li>Stocks reviewed on a quarterly basis. Corporate actions affecting index components (e.g., mergers, de-listings) reflected immediately </li></ul>DOW JONES DHARMA INDEXES
  12. 12. <ul><li>Industry Screens Examples for unacceptable sectors : Pharma & Health Care Supplies, Aerospace and Defense, Hypermarkets and Super Centers, Broadcasting and Cable TV </li></ul><ul><li>Examples for unacceptable business practices : Adult Entertainment, Animal Testing, Contraceptives/Abortifacients, Defense and weaponry, Tobacco & Alcohol </li></ul><ul><li>Environmental Screens </li></ul><ul><li>Examples: Emissions, Climate change and carbon footprint analysis, Oil and chemical spills, Waste management and recycling </li></ul><ul><li>Corporate Governance Screens </li></ul><ul><li>Examples: Labor relations/disputes/discrimination allegations, Human rights violations, Working conditions/wages </li></ul>DOW JONES DHARMA INDEXES
  13. 13. PERFORMANCE 29.34% 12/31/2005 Dow Jones India Index 71.95% 12/30/2005 Dow Jones Dharma India Index 68.50% 12/31/2002 Dow Jones Japan Titans 100 Index 82.52% 12/31/2002 Dow Jones Dharma Japan Index 55.00% 12/31/2002 Dow Jones U.K. Titans 50 Index 34.16% 12/31/2002 Dow Jones Dharma U.K. Index 53.83% 12/31/2002 Dow Jones Industrial Average 62.52% 12/31/2002 Dow Jones Dharma U.S. Index 106.62% 12/31/2002 Dow Jones World Index 115.01% 12/31/2002 Dow Jones Dharma Global Index Cumulative Return Since 12/31/2002 Date Index
  15. 15. <ul><li>BENEFITS </li></ul><ul><li>Establishes standards for Dharmic investors. </li></ul><ul><li>Produced by a leading and trusted global index provider </li></ul><ul><li>Credible and internationally recognized boards of experts. </li></ul><ul><li>Enable companies to increase exposure for their brand. </li></ul>DOW JONES DHARMA INDEXES
  16. 16. DOW JONES DHARMA INDEXES <ul><li>SUMMARY </li></ul><ul><li>WEIGHTING Free Float Market Capitalization </li></ul><ul><li>REVIEW FREQUENCY Quarterly </li></ul><ul><li>CALCULATION In USD, GBP, JPY, INR </li></ul><ul><li>DISTRIBUTION End Of Day </li></ul><ul><li>BASE VALUE/BASE DATE 1000 as of December 31, 2002 </li></ul><ul><li>DATE INTRODUCED January 15, 2008 </li></ul>
  17. 17. Sustain Faith, for Faith is Sustainable New York – Frankfurt – Dubai – Singapore - Tokyo DOW JONES DHARMA INDEXES