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All investors are concerned about performance. They are also concerned about risk. But how do you measure performance given the amount of risk taken?
The Dow Jones Relative Risk Indexes are designed to benchmark total-portfolio investments at various specified levels of risk. They represent five investor risk profiles:
- Conservative
- Moderately Conservative
- Moderate
- Moderately Aggressive
- Aggressive
BASIC COMPOSITION
Each Dow Jones Relative Risk Index measures three major asset classes ? stocks, bonds and cash ? which in turn are represented by multiple subindexes.
The asset classes are represented by subindexes. The stock subindexes are products of Dow Jones Indexes; the bond and cash (T-Bill) subindexes are products of Barclays Capital.
Subindexes of the Dow Jones Relative Risk Indexes
| U.S. Series |
Global Series |
| Stock |
Stock |
| - Dow Jones Large-Cap Growth Index |
- Dow Jones U.S. Large-Cap Growth Index |
| - Dow Jones Large-Cap Value Index |
- Dow Jones U.S. Large-Cap Value Index |
| - Dow Jones Mid-Cap Growth Index |
- Dow Jones U.S. Mid-Cap Growth Index |
| - Dow Jones Mid-Cap Value Index |
- Dow Jones U.S. Mid-Cap Value Index |
| - Dow Jones Small-Cap Growth Index |
- Dow Jones U.S. Small-Cap Growth Index |
| - Dow Jones Small-Cap Value Index |
- Dow Jones U.S. Small-Cap Value Index |
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- Dow Jones Europe/Canada Index |
| BOND |
- Dow Jones Asia/Pacific Index |
| - Barclays Capital Government Bond Index |
- Dow Jones Institutional Emerging Markets Index |
| - Barclays Capital Corporate Bond Index |
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| - Barclays Capital Mortgage Bond Index |
BOND |
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- Barclays Capital Government Bond Index |
| CASH |
- Barclays Capital Corporate Bond Index |
| - Barclays Capital 1-3 month T-bill index |
- Barclays Capital Mortgage Bond Index |
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- Barclays Capital Majors (ex U.S.) Index |
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CASH |
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- Barclays Capital 1-3 month T-bill index |
The methodologies of the subindexes can be obtained from Dow Jones Indexes and Barclays Capital.
REBALANCING
Within each index, the three asset classes as represented by the subindexes are reweighted each month to reflect a risk profile that is set at the beginning of each month in relation to the current risk level of an all-stock portfolio.
Percentage of all-stock portfolio risk reflected in the index
| Dow Jones Conservative Index |
20% |
| Dow Jones Moderately Conservative Index |
40% |
| Dow Jones Moderate Index |
60% |
| Dow Jones Moderately Aggressive Index |
80% |
| Dow Jones Aggressive Index |
100% |
For example, the risk level of the Dow Jones Aggressive Index is set monthly to 100% of the current risk of the all-stock portfolio. Risk is calculated as 36-month semivariance, which is a measure of risk that indicates how far below the mean any single return might normally be.
To prevent the complete exclusion of any asset class, the weighting of each asset class is not allowed to drop below 5% in any index.
CALCULATING RETURN
The return of each index is calculated monthly by multiplying the returns of the subindexes by the weighting assigned to the corresponding composite of the major asset classes and then summing the weighted returns.
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