Vident Financial’s Vident Core U.S. Stock Index Semi-Annual Rebalance Review July 2017

Vident Core U.S. Stock Index (VCUSX) is a principles-based U.S. equity strategy emphasizing companies with high-quality leadership and governance standards and trading at attractive valuations. VCUSX seeks to emphasize companies that are believed to have high-quality leadership and governance corporate standards and lower fundamental risks, while seeking to reflect disciplined, factor-based portfolio construction and well diversified U.S. company exposure.

Rebalance Goals:

The rules-driven objective semi-annual reviews ensure the index continues to accurately reflect Vident’s principles-based methodology and form an essential component of the index management. The rebalance serves to identify changes in market opportunities and risks and update the portfolio accordingly. As well as, eliminate what we believe to be high risk stocks from the index and increase diversity and liquidity by reducing concentrated positions and positioning in lesser liquid names. Positions which have grown in size are reduced to decrease company concentration risks. Rebalance updates are driven by risk premia factors, seeking to return a portfolio of companies with strong leadership and governance and favorable valuations.

Outcomes of Current Rebalance:

Turnover this rebalance was in line with previous rebalances at 30%. Given the index’s focus on both risk management and attractive opportunities, about half of turnover was driven by evolving opportunities to allocate to, what we believe to be, high quality companies at attractive valuations. In the index, the average stock’s factor score increased by 30%. Reducing concentration risks, by trimming back allocations in stocks which had grown due to strong performance, was also a material driver in the rebalance. Following the rebalance, the largest sector allocation underweights are to Health Care and Technology, while the largest sector allocation overweights are to Consumer Discretionary and Financials.

About Vident Financial

Vident Financial develops and licenses transparent investment market solutions (indices and funds) based on a distinct philosophy and rigorous global research. Their investment strategies are founded upon sound principles that help identify environments where capital is going to thrive long-term. Many investment strategies are constructed by simply…

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