Indexes
Index Methodology for Vinter's Portfolio Crypto Assets
The Portfolio Crypto Asset Indexes are a family of benchmarks. The indexes are developed to provide a rule-based and transparent way to track the value of a portfolio. Each index measures the value of an investment strategy.
This methodology clearly determines what constitutes an active market for the purposes of each index, and establishes the priority given to different types of input data. The methodology takes into account factors like the size and liquidity of the market, the transparency of trading, the positions of market participants, market concentration, and the adequacy of any sample to represent the market or economic reality that the benchmark is intended to measure.
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The asset universe is a list of all possible index constituents. Assets are eligible as index constituents if they meet the eligibility criteria listed in Vinter’s benchmark statement.
The default asset universe consists of all eligible constituents. It is possible to restrict the universe to certain categories of assets (e.g. DeFi, Metaverse or Layer-1).
The index constituents are selected from the asset universe. One example is to select the ten largest assets based on the current market capitalization. In general, the selection process can be based on a number of factors such as market capitalization, trading volume, returns, volatility, or a combination thereof.
Assets are selected on the review date, which is five business days prior to the rebalancing date.
If it is not possible to reach the intended number of constituents, the Index Committee can decide to either include non-eligible constituents or allow the index to have fewer constituents than intended. The decision shall be made publicly available.
The rebalance weights can be determined based on a number of factors such as returns, volatility, market capitalization, trading volume, or a combination thereof - with or without smoothing over time. Caps and floors can be included.
Rebalance weights are calculated on the review date, which is five business days prior to the rebalancing date.
The current weights per asset display the current asset allocation, and is relevant for an ETF creation/redemption. The current weights changes every day, based on price movements, whereas the rebalance weights are unchanged between rebalances. The rebalance weights are updated only when the index is rebalanced.
All indexes are rebalanced periodically, with the rebalancing date set to the last business day of the month. A business day is a day when the SIX stock exchange is open for trading (this calendar choice only affects the rebalancing date and the review date).
Rebalancing involves selection of constituents and calculation of their rebalancing weights. Calculations are done using the closing prices on the rebalancing date. The new weights per asset are used on the opening of the day after rebalancing.
After the rebalance, the portfolio is updated so that its current weights per asset equal the rebalancing weights per asset. The bigger the difference between the current weight and the rebalancing weight, the larger the portfolio turnover.
There are three possible frequencies with which index values are updated: real-time, hourly and daily.
Unless otherwise specified, each index will adhere to the following standards.
- Universe: All eligible constituents.
- Select: Top N by 90 days average market capitalization.
- Weight: By current market capitalization. (Weight is sometimes called Relabancing Weight or Target Weight.)
- Rebalance: Quarterly on the last business day of the last month. It is a a "business day" when the SIX Swiss Exchange is open for trading.
- Publish: Daily 4 pm London time (5 pm Zurich time).
A market index is a passive index designed to track the returns of the crypto market, or parts thereof. Constituents are weighted by market capitalization by default. Some indexes exist as equal-weighted variants.
All indexes follow the Index Construction with default parameter values as described in the Index Construction section.
- Asset selection: Top 5 by 90 days average market capitalization.
- Rebalance weights: Current market capitalization.
- Rationale: A passive index capturing the crypto market that is easy to hedge and trade.
- Asset selection: Ranked 3-9 by 90 days average market capitalization (i.e. take top 9 excluding the two largest).
- Rebalance weights: Average 90 days market capitalization.
- Rationale: Capture the mid-cap assets by excluding the two largest ones.
- Asset selection: Top 10 by 90 days average market capitalization.
- Rebalance weights: Current market capitalization.
- Rationale: A passive index capturing the crypto market that is easy to hedge and trade.
- Asset selection: Top 5 by 90 days average market capitalization.
- Rebalance weights: Weigh all assets equally.
- Asset selection: Top 10 by 90 days average market capitalization.
- Rebalance weights: Square root of current market capitalization.
- Rationale: A passive index with increased weight in small-caps.
A strategic index measuring a strategically chosen sub-section of the crypto market. The strategic indexes are less passive than the market indexes.
- Asset universe: Decentralized Finance (DeFi) assets
- Asset selection: Top 10 by 90 days average market capitalization.
- Rebalance weights: Current market capitalization.
- Rationale: DeFi is a subcategory of the crypto universe with high growth.
- Asset universe: Smart contract platforms.
- Asset selection: Top 10 by current market capitalization.
- Rebalance weights: Current market capitalization.
- Rationale: Smart contracts can automatize tasks done by humans and reduce the need for trust.
- Asset universe: Centralized Exchange (CEX) tokens e.g. BNB, HT, OKB, and LEO.
- Asset selection: Largest by market cap and trading volume.
- Rebalance weights: Square root of the trading volume.
- Rationale: Centralized exchanges are powerful industry participants and their tokens can create and capture value.
- Asset universe: Proof-of-Stake assets.
- Asset selection: Top 10 by market capitalization.
- Rebalance weights: Current market capitalization.
- Rationale: The proof-of-stake (PoS) consensus mechanism exhibits several unique characteristics compared to proof-of-work (PoW). The index is suitable for investors who think PoS is superior to PoW.
- Asset universe: Metaverse.
- Asset selection: Top 5 by market capitalization.
- Rebalance weights: Current market capitalization.
Factor investing is an investment approach that involves targeting quantifiable characteristics called “factors” that can explain differences in asset returns. Characteristics that may be included in a factor-based approach includes: size, volatility, value, momentum, leverage, carry and profitability.
- Asset selection: Top 10 by 90 days average market capitalization.
- Rebalanced quarterly.
- Asset selection: Top 5 by 90 days average market capitalization.
- Rebalance weights: Such that each asset contributes equally to the volatility of the portfolio.
- Asset selection: Top 5 by 90 days average market capitalization.
- Rebalance weights: Such that the portfolio volatility is minimized. The max weight per asset is 50%.
- Rebalanced quarterly.
- Rationale: High volatility is a key concern for investors. This index invest in large-cap crypto index with a low volatility without sacrificing diversification.
The index value is given by the weighted sum over all constituents of quantity times price divided by a divisor.
The quantity per asset is unchanged between rebalances and is set such that the target weight per asset is reached after rebalancing. The divisor enforces index continuity on rebalancing. The divisor is defined so that the index starts at a certain start value, which ensures each index tracks the value of a certain amount of capital invested on the start date.
The Vinter reference rates are used to price assets. The algorithm is described in Vinter's single asset reference rates. This index is using the default calculation method. The Benchmark Statement defines the eligibility criteria for input data.
The market capitalization is given by price times circulating supply. For Proof-of-Work crypto assets, a block explorer is used to get the circulating supply. For crypto assets issued on smart contract platforms, such as ERC20 issued on Ethereum, the circulating supply is calculated by starting with the total supply and removing the locked tokens e.g. those held by the founding organization.
If the above is insufficient or inapplicable to determine the circulating supply, other readily available data sources determined by the Company’s Product Maintenance Department might be considered.
The momentum score per asset is calculated on the review date as follows.
- 1.Get the 15-day and 30-day returns for all assets.
- 2.Calculate the risk-adjusted return by dividing the returns with the volatility of the asset. The volatility is calculated using daily data for the last three months.
- 3.Convert the 15-day risk-adjusted returns to a Z-score by subtracting the assets’ mean and dividing by the assets’ standard deviation.
- 4.Convert the 30-day risk-adjusted returns to a Z-score by subtracting the assets’ mean and dividing by the assets’ standard deviation.
- 5.Average the two Z-scores.
- 6.Apply a cap and a floor so the value cannot be above 3 or below minus 3.
- 7.Convert the capped and floored Z-score to a positive Z-score by adding one if it’s already positive and otherwise taking 1 divided by 1 minus the score.
- 8.The momentum score is proportional to this positive Z-score. The momentum score per asset is a number between 0 and 1, and they sum to 100%.
The Benchmark Administrator is the central recipient of input data with the ability to evaluate the integrity and accuracy of input data on a consistent basis. The Benchmark Administrator is responsible for the development of the indexes and controls all aspects of the provision of benchmarks. The Benchmark Administrator has established a permanent and effective oversight function, governance processes subject to periodic reviews and audits, policies regarding complaints, ethics, conflicts of interest and contingency, and has established a clear internal organizational structure with consistent roles and responsibilities to identify, prevent, disclose, mitigate, and manage conflicts of interest.
The Calculation Agent is an individual or entity that is responsible for determining the value of an index and/or a financial instrument. The Calculation Agent calculates the index values in accordance with the index methodology. Upon the request of the Benchmark Administrator, the Calculation Agent shall provide all information available on the composition and details of the calculation of the requested index.
The Publication Agent is an entity responsible for the publication of index values to dissemination platforms.
Vinter is the benchmark administrator, calculation agent and publication agent of this index family.
- Crypto asset: A digital representation of value that is cryptographically secured.
- Volume: the quantity of a transaction.
- CET: Central European Time.
Initial version. June 22, 2020.
- Published December 30, 2020.
- Forked from index calculation framework, June 2020.
- Moved governance structure and maintenance into the benchmark statement.
- Edited eligibility criteria and moved fork text into the fork section of the benchmark statement.
- Changed mathematical formulas into natural language descriptions.
- Changed default asset selection to 90 days average market capitalization.
- Changed rebalancing date.
- Added administration section.
- Added indexes. Split the section Indexes into several sections.
Any product(s) offered with the indexes described in this methodology as underlying is not in any way sponsored, endorsed, sold, or promoted by Invierno, reg. no. 559207-4172 (“Vinter”). Vinter does not make any warranty or representation whatsoever, expressly or impliedly either as to the results to be obtained from the use of the index(es) “Index” described, licenses, used, or referenced under any Programme or Prospectus and/or the figure at which the Index stands at any particular time on any particular day or otherwise. The Index is compiled and calculated solely by Vinter. However, Vinter shall not be liable (whether in negligence or otherwise) to any person for any error in the Index and Vinter shall not be under any obligation to advise any person of any error therein. Vinter is a registered trademark owned by Invierno AB. Invierno AB and its indexes are protected by various intellectual property rights. All third-party use of Vinter and its indexes require by law a licensing agreement with Invierno AB. The Index is a product of Invierno AB. Any Programme referencing the Index is not sponsored, endorsed, sold, or promoted by Vinter and/or its affiliates, and none of such parties makes any representation regarding the advisability of investing in such product(s) nor do they have any liability for any errors, omissions, or interruptions of the Index. The Programme is in no way sponsored, endorsed, sold, or promoted by Vinter and its Licensors and neither of the Licensors shall have any liability with respect thereto. Vinter is not a registered investment advisor, tax advisor or broker/dealer. The content of the index methodology or its related documents underlying is intended only to provide general and preliminary information and shall not be construed as investment, tax, legal or financial advice. The reader shall ensure that all of his or her investment decisions are not made based on the content of this document and shall be solely responsible for all financial losses made in connection with investment decisions. Nothing contained in the index methodology or its related documents constitutes a solicitation, recommendation, endorsement, or offer by Vinter or any third party associated with Vinter to buy or sell any financial instruments in this or any other jurisdiction. Although best efforts are made to ensure that all information on the methodology documents is accurate and up to date, occasionally unintended errors and misprints may occur. The index owner grants the benchmark administrator an exclusive, royalty-free, non-transferable, non-sublicensable license to use the index owner's intellectual property rights to fulfil the benchmark administrator's obligations under the index agreement and the Benchmarks Regulation, including registration of identifiers for indexes. Vinter is a registered Benchmark Administrator by Finansinspektionen (FI) and the European Securities and Markets Authority (ESMA) under Article 34 of the European Benchmarks Regulation (2016/1011).
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