Index name

MSCI World ex Australia Small Cap Quality 150 100% Hedged to AUD Index

Overview

The Index measures the performance of a quality growth strategy by identifying the largest 150 stocks based on the free-float market capitalisation (“FMC”) of the securities in the MSCI World ex Australia Small Cap Index tilted by the quality score, at rebalance. The quality scores are based on three main fundamental variables: high return on equity, stable year-over-year earnings growth and low financial leverage.

Summary of Index calculation methodology

A four step process is followed to determine the Reference Index:

1. Universe

The eligible universe is all the companies in the MSCI World ex Australia Small Cap Index (“Parent Index”), which is a traditional FMC weighted index.

2. Quality

MSCI calculates a quality score for each company in the universe based on the following fundamental accounting variables from publicly reported financial data:
1. return on equity;
2. earnings variability; and
3. debt to equity ratio.
Companies are ranked by quality score and a fixed number required to cover 30% of the FMC of the Parent Index are selected, with the aim of attaining a high exposure to the quality factor, while maintaining sufficient market capitalisation and number of companies covered. At the date of this PDS, 1000 companies are included. Constituents are then weighted with a tilt to quality as follows: Quality weight = Quality score x FMC weight in the Parent Index

3. Select top 150

The top 150 companies by quality weight are then selected for the Index.

4. Weighting

The weights of the final 150 constituents are then adjusted proportionately based on their quality weight in step 2. The maximum weight of any company is capped at 5%.

Currency hedging

MSCI reduces the exposure of the Index to foreign exchange rate fluctuations between the Australian dollar and currencies in which the constituents are denominated by notionally entering into forward foreign exchange contracts on a rolling one-month basis at the end of each month. The Index is not fully hedged and retains some exposure to currency movements.

Rebalances

The Index is reviewed and rebalanced on a semi-annual basis, usually as of the close of the last business day of May and November. The quality scores are recalculated at the end of April and October and used for May and November rebalances respectively.

For full details of the methodology, click here

Index provider

MSCI Inc (“MSCI”). MSCI is not a related body corporate of VanEck.
QHSM is indexed to a MSCI index. QHSM is not sponsored, endorsed or promoted by MSCI, and MSCI bears no liability with respect to QHSM or the MSCI World ex Australia Small Cap Quality 150 100% Hedged to AUD Index. The PDS contains a more detailed description of the limited relationship MSCI has with VanEck and QHSM.