Benchmark Income Return of Dow Jones Sukuk Investment Grade Index

Submitted by Addy Suhut on Sun, 08/30/2020 - 20:50

The Dow Jones (DJ) Sukuk Investment Grade Index is a subset of its parent index, the Dow Jones Sukuk Index (ex-Reinvestment).

The income return or yield of this benchmark index is derived from the par-weighted coupon rate of the index.

The par-weighted coupon rate of the index can be manually extracted from the index provider's website, namely from the index data summary webpage (shows latest available daily coupon data) or from the index factsheet (shows latest month-end coupon data). By contrast, total return and capital return or price return of the index can be automatically downloaded from the Bloomberg Terminal, using the ticker DJSIKGT Index.

The index data summary webpage is accessible here, while the index factsheet is available as a pdf download from the index's overview webpage at the index provider's website.

The rest of the process in calculating the benchmark income return of the index is similar to the process of calculating the benchmark income return of the parent index, which is described here.

Specifically, within the index data summary webpage or the index factsheet pdf document, the par-weighted coupon rate is available from the section on "Index Characteristics", which, in the case of the factsheet, is on page 3, as highlighted in yellow in the screenshot below:
DJSUKTXR - Factsheet -  section on Index Characteristics

The benchmark income return during a particular reporting period is derived by taking a representative number of the par-weighted coupon rate prevailing during the reporting period. In an ideal world where this par-weighted coupon rate data can be downloaded automatically, the simple average of the par-weighted coupon rates at the end of each month spanning the reporting period can be used to represent the benchmark income return or yield for the reporting period. For example, the Q2 benchmark income return number can be derived by taking an average of the par-weighted coupon rates at the end of March 2020, April 2020, May 2020 and June 2020.

However, since the par-weighted coupon data is not easily downloaded, since only the latest par-weighted coupon rate daily data and monthly factsheet pdf document are available from the index provider's website at any given time, some representative par-weighted coupon rate prevailing during the reporting period is used instead of using the earlier-mentioned ideal statistic of average par-weighted coupon rate at the end of each month spanning the reporting period. Table 1 and Table 2 below shows how the Q2 and Q1 2020 income return were derived:

Table 1: Derivation of Q2 2020 Benchmark Income Return of the DJ Sukuk Investment Grade Index

Data Type % (p.a./annualised) % (non-annualised/quarterly-equivalent)
Par-weighted coupon rate as at end-March 2020 3.66% n/a
Par-weighted coupon rate as at end-July 2020 3.56% (as highlighted in yellow in the screenshot above) n/a
Q2 2020 Benchmark Income Return / Benchmark Yield, derived by taking the average between the par-weighted coupon rate as at end-Feb 2020 and the equivalent rate as at end-July 2020 (3.67% + 3.56%) ÷ 2 = 3.61% 3.61% ÷ 4 = 0.9025%,
which rounds down to 0.90%


Table 2: Derivation of Q1 2020 Benchmark Income Return of the DJ Sukuk Investment Grade Index

Data Type % (p.a./annualised) % (non-annualised/quarterly-equivalent)
Par-weighted coupon rate as at end-March 2020 3.66% n/a
Q1 2020 Benchmark Income Return / Benchmark Yield, derived by assuming that it is equal to the par-weighted coupon rate as at end-Feb 2020 3.66% 3.67% ÷ 4 = 0.915%,
which rounds up to 0.92%


As shown above, the Q2 and Q1 benchmark income return numbers were derived differently, depending on the availability of data. In the extreme case of Q1 2020, no coupon rate data or factsheets with dates adjacent to the reporting period had been downloaded during this period, other than the end-March 2020 factsheet - the nearest-dated data available were the end-Jan 2019 and end-July 2020 data, whose dates are too far off away from the targeted Q1 reporting period. The resulting Q2 and Q1 2020 benchmark income return are shown in Table 3 below:

Table 3: Q1-Q2 2020 Benchmark Income Return of the DJ Sukuk Investment Grade Index

Data Type % (p.a./annualised) % (non-annualised/quarterly-equivalent)
Q2 2020 Benchmark Income Return / Benchmark Yield 3.61% 0.90%
Q1 2020 Benchmark Income Return / Benchmark Yield 3.66% 0.92%