Why you should look under the hood with your thematic index

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    The indices of Indxx differ from others in three ways. First, it looks at a topic across the global stock market, as the companies driving a topic are often from different countries.

    Second, Indxx does research to understand both the topic and the revenue a company makes from it, rather than using a predetermined classification system. Typically, the company needs to get 50% of its revenue from the topic to get into its thematic index, but Sharma said, “We can lower it if it’s a newer topic and the revenue isn’t that big right now.”

    Creating a thematic index is different from creating a simple sector or market capitalization because topics can be cross-industry and cross-country, so there is no easy way to do it. He said those who use a given classification system do not offer the most accurate subject treatment.

    “When we create a topic in-house, or when a customer approaches us to create a thematic index, the first thing we try to understand is where the topic came from, where it is today, and where it might lead. what the drivers are in terms of developing the topic, for example, and this allows us to develop a methodology that most effectively addresses the topic.

    “We use subtopics as building blocks to address the issue as a whole,” Sharma said. “This is a very important part of the process because often you have two indexes that have a very similar name and maybe sound like they’re targeting the same topic. However, if you look under the hood of the methodology, you will find that the ways in which they address the subject vary widely. “

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