Rules / Methodology

Calculation Methodology

The Index is calculated using a modified market capitalization weighting methodology; with component weights modified to conform to asset diversification rules applied in conjunction with the scheduled quarterly updates to the Index.

Whereas the constituents in a market capitalization index are allocated proportions based on their market cap relative to each other, our modified market methodology caps the total weight of the largest companies in order to reduce their influence on the overall index. 

Beginning in July 2021, the Index also incorporated the SPADE Index TrueCap™ methodology, which was developed to more accurately reflect the weightings assigned to highly diversified firms by focusing on the relevant business activity within a sector/theme (i.e., defense, aerospace, homeland security, space) as if it were a standalone entity.  The TrueCap™ methodology enhances indexes by resolving issues related to overweighting highly diversified firms operating in the sector as well as enabling the inclusion of companies who the market values more richly than the valuation of the sector as a whole.
 
The resultant weighting is designed to be RIC compliant and ‘fund friendly’. The weight of any component stock at the time of rebalancing may not account for more than 10% of the total value of the Index.

Component Selection

The Index includes companies that are systemically important to the US defense sector and are involved with the development, manufacture, operation, and support of US defense, military, national/homeland security, and government space operations. 

“Systematically important” represents those firms who by their elimination would significantly impact the operations or capabilities of the US Department of Defense. Likewise, a firm’s military business needs to be considered important to the firm and a significant part of their revenues. 

To be included in the Index, components must also meet the following:

  • Maintain a minimum $250 million market valuation during the 25 days preceding the initial inclusion date.
  • Maintain a minimum $5.00 daily share price during the 25 days preceding the initial inclusion date.
  • Have a minimum average daily trading volume over the preceding 25 days prior to the inclusion date of 50,000 shares.
  • Have a quarterly sales/revenue/turnover of at least $10 million for the prior two announced quarters preceding its inclusion.
  • There is no country-of-origin requirement, however, firms must be listed on the New York Stock Exchange or quoted on the NASDAQ National Market.

SPADE Indexes may delete one or more components or replace one or more issues contained in the Index with one or more substitute stocks of its choice, if in the SPADE Indexes’ discretion such addition, deletion or substitution is necessary or appropriate to maintain the quality and/or character of the industry groups to which the Index relates.

Continued Component Inclusion

Component stocks will typically be removed from the SPADE Defense Index under the following conditions at the time of rebalancing:

  • Total market capitalization falls below $150 Million.
  • The last-reported sale price falls below $3.00 per share.
  • Liquidity falls below acceptable levels, defined as $1 million daily average trading volume. 

The above requirements notwithstanding, SPADE Indexes reserves the authority to remove one or more component stocks at any time if it believes such stock(s) no longer provide adequate representation of the sector or no longer maintain the quality and/or character of the Index.

Corporate Actions

  • In the event of a merger between two components, the share weight of the surviving entity may be adjusted to account for any shares issued in the acquisition.
  • SPADE Indexes may substitute components or change the number of issues included in the index, based on changing conditions in the industry or in the event of certain types of corporate actions, including mergers, acquisitions, spin-offs, and reorganizations.
  • In the event of component or share weight changes to the Index portfolio, the payment of dividends other than ordinary cash dividends, spin-offs, rights offerings, re-capitalization, or other corporate actions affecting a component of the Index; the Index divisor may be adjusted to ensure that there are no changes to the Index level as a result of non-market forces.
  • For changes in a component’s shares outstanding greater than 5% due to a merger, acquisition or spin-off, an adjustment will be made effective after the close on the effective date of the corporate action. Share changes less than 5% are made during the scheduled quarterly updates to the Index.

Quarterly Updates

Changes to the Index composition and/or the component share weights in the Index typically take effect after the close of trading on the next to last business day of each calendar quarter month (“Rebalance Date”). The components and weights will be determined and announced at the close of trading at least three days prior to the Rebalance Date. This takes place in March, June, September, and December.

In conjunction with the quarterly review, the share weights used in the calculation of the Index are updated based upon current shares outstanding and prices as part of the rebalancing process. The share weight of each component in the Index portfolio remains fixed between quarterly reviews except in the event of certain types of corporate actions such as splits, reverse splits, stock dividends, or similar events.