Basket Indexes
Index Methodology for the Vinter Crypto Basket Indexes
Introduction
The Vinter Crypto Basket Indexes are a family of benchmarks 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 each index and establishes the priority given to different types of input data. The methodology considers 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 intends to measure.
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Indexes
Off-the-shelf Indexes
An off-the-shelf 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.
Vinter 5 Index
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.
Ticker: VNMC5
Vinter 7 Mid Index
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.
Vinter 10 Index
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.
Ticker: VNMC10
Vinter 5 Equal Index
Asset selection: Top 5 by 90 days average market capitalization.
Rebalance weights: Weigh all assets equally.
Ticker: VNEQ5
Vinter 10 Square Root Index
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.
Thematic Indexes
A strategic index measuring a strategically chosen sub-section of the crypto market. The strategic indexes are less passive than the market indexes.
Vinter DeFi 5 Index
Asset universe: Decentralized Finance (DeFi) assets
Asset selection: Top 5 by 90 days average market capitalization.
Rebalance weights: Current market capitalization.
Rationale: DeFi is a subcategory of the crypto universe with high growth.
Ticker: DEFI5
Vinter Smart contracts 10 Index
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.
Ticker: LAY1
Vinter Centralized Exchange Index
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.
Vinter Proof-of-Stake 10 Index
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.
Vinter Metaverse 5 Index
Asset universe: Metaverse.
Asset selection: Top 5 by market capitalization.
Rebalance weights: Current market capitalization.
Vinter Bitcoin and Gold 20 80 index
Asset selection: BTC and XAU
Rebalanced weights: 80% XAU and 20% BTC.
Rebalanced quarterly, starting end of January.
XAU is priced using the PAXG reference rate.
BOLD2 index
The BOLD2 index allocates to bitcoin and PAX gold. Periodic rebalancing brings the current weight to the target weights. The weight in bitcoin (BTC) after each rebalancing is proportional to its inverse volatility, so that an equal amount of risk is allocated to both assets. The weight of PAX gold (PAXG) is one minus the weight in bitcoin.
Asset selection: BTC and PAXG.
Target weights: Proportional to the inverse volatility, so that an equal amount of risk is allocated to both assets. The weight in bitcoin is calculated as IVB/(IVB + IVG) where IVB is the inverse volatility of bitcoin and IBG is the inverse volatility of gold. Volatilities are calculated using 360 days of data.
Rebalanced: Monthly on the last business day of the month.
Factor-based Indexes
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 include size, volatility, value, momentum, leverage, carry and profitability.
Vinter 10 Momentum Weight Index
Asset selection: Top 10 by 90 days average market capitalization.
Rebalance weights: Proportional to the momentum score.
Rebalanced quarterly.
Vinter 5 Risk Contribution Index
Asset selection: Top 5 by 90 days average market capitalization.
Rebalance weights: Such that each asset contributes equally to the volatility of the portfolio.
Vinter 5 Minimum Volatility Index
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.
Momentum Score
The momentum scores per asset are calculated on the review date as follows.
Get the 30-day and 60-day returns for all assets.
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.
Convert the 30-day risk-adjusted returns to a Z-score by subtracting the assets’ mean and dividing by the assets’ standard deviation.
Convert the 60-day risk-adjusted returns to a Z-score by subtracting the assets’ mean and dividing by the assets’ standard deviation.
Average the two Z-scores.
Apply a cap and a floor so the value cannot be above 3 or below minus 3.
Convert the capped and floored Z-score to a positive Z-score by raising 1.5 to the power of Z.
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%.
General Construction Parameters
This section defines the general construction parameters used in designing the index such as the asset universe, the asset selection and the rebalancing weights. This section contains the details needed to calculate each index.
Universe
The asset universe is a list of all possible index constituents. The default asset universe consists of all eligible constituents. It is possible to restrict the universe to assets that only contain a certain label e.g. Metaverse or Web3 as defined in the Vinter Taxonomy.
Selection
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. Note that Review Date is not the same as the Yearly Review.
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.
Weighting
Rebalance weights are calculated on the review date.
The current weight per asset displays the current asset allocation and is relevant for an ETF creation/redemption. The current weights change 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.
The weight for each asset is always between 0 and 1. The sum of all constituent weights is equal to 100%.
Rebalancing
All indexes are rebalanced periodically, following the rebalancing calendar.
Rebalancing involves the selection of constituents and the 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.
Eligible Assets
Assets are eligible as index constituents if they meet the eligibility criteria listed in Vinter’s benchmark statement.
Calculation
The index value is given by the weighted sum over all constituents of quantity times price divided by a divisor.
The price per asset is calculated by Vinter, as detailed in the constituent pricing section.
The quantity per asset is set to the Rebalancing Weight per asset after rebalancing. In a price return index, the quantity per asset is unchanged between rebalances.
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.
Constituent Pricing
The Vinter reference rates are used to price assets and can vary from one index to another. The algorithms are described in Vinter's single asset reference rates. The Benchmark Statement defines the eligibility criteria for input data.
Market Capitalization
The market capitalization is given by price times circulating supply. Using circulating supply is similar to using public float for an equity index. The market capitalization is calculated at midnight UTC.
Index Provider
Invierno AB, Reg. No. 559207-4172, Box 5193, 10244 Stockholm, Sweden (“Vinter”)
Benchmark Administrator
Vinter is the benchmark administrator and the central recipient of input data with the ability to evaluate the integrity and accuracy of input data on a consistent basis. Vinter is responsible for the development of the index and controls all aspects of the provision of the benchmark. Vinter 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.
Calculation Agent
Vinter is the calculation agent and is responsible for determining the value of the index described in the index methodology. Vinter 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.
Document Versions
Version | Date of update | Change |
1.0. | 2020-06-22 | Publish initial version. |
2.0. | 2020-12-30 | Edit eligibility criteria, formulas, rebalancing date, administration section, default asset selection. |
2.1. | 2022-11-04 | Add indexes and split it into sub-sections |
3.0. | 2023-09-11 | Add General construction parameters and Vanilla indexes |
Disclaimer
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 fulfill 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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