The GSV 300 Index is constructed using a four-step process: Screening, Ranking + Scoring, Index Weightage, and Rebalancing.
GSV uses four (4) criteria to screen all public companies:
- Market Cap Greater than $100 million
- Minimum of Two (2) Analysts following the Company
- Long-Term EPS Growth Rate Greater than 15%
- P/E/G Greater than Zero (0)
2. Ranking + Scoring:
After companies are screened, each is ranked into deciles against four criteria with different weightages:
- Forward Revenue Growth Rate (40% weightage)*
- Historical Revenue Growth Rate (15% weightage)*
- Long-Term EPS Growth Rate (30% weightage)
- Country GDP Growth Rate (15% weightage)**
Depending on the decile ranking that a company falls into against each criteria, all or a portion of that criteria’s weightage is applied to a final aggregate “score”. Companies ranking in the top decile of a criterion receive the full scoring value of that criterion, companies falling into the second decile receive 90% of the criterion’s scoring value, and so on.
*Forward + Historical Revenue Growth Rate: 2-Year CAGR for revenue is calculated based on Capital IQ estimates and historical data. Wherever possible, calendar year data is considered, and if such data is not available, financial year data is used. Companies are ranked based on the 2-Year CAGR.
**Country GDP Growth Rate: Countries are ranked based on IMF data for forward 2-Year GDP Growth Rate. Companies are ranked into quintiles for this category only (all others are deciles).
Ranking & Scoring Example: Company A
Bonus Points & Penalties: In addition to the criteria considered above, the Long Term Debt/Capital and ROE of each company can yield bonus points or penalties. Any company that has a Long Term Debt/Capital ratio greater than 25% receives a penalty of 5 points. Any company that has an ROE greater than 30% is awarded a bonus of 5 points.
The top 300 companies that emerge from the Ranking and Scoring process are used to create the GSV 300 Index.
3. Index Weightage:
The top 300 companies are used to create a market cap weighted index with the following restrictions:
- No company weightage in the index can be greater than 2.5% of the overall index.
Company weightage is limited to 2.5% to avoid a “NASDAQ Effect”, where individual companies have undue influence on overall index movement.
- Companies from China and Hong Kong are included at 30% of their market caps.
Chinese and Hong Kong companies are limited to 30% of their market caps to limit the representation of any individual country in the GSV 300 index. Chinese and Hong Kong companies account for roughly 7% of total world market cap (January 2015). Since a large number of companies originating in China and Hong Kong fulfill GSV 300 Index criteria at any given time, if they are included at full strength, the Chinese economy will have a disproportionate influence on the index.
The GSV 300 Index undergoes a rebalancing process every 3 months, where the screening, ranking and scoring process is repeated and a new set of top 300 companies are chosen to populate the index. Once the new index is created, each company’s contribution to the index is multiplied by a factor. The factor is determined such that the closing index value using the old set of companies is equal to the index value using the new set of companies.
For example, if the closing index value of GSV 300 using the old set of companies is 120 and the index value using the new set of companies is 100, all company contributions are multiplied by a factor of 1.2 to ensure parity at rebalancing.