|Return type||Total Return|
The SGI Vol Target BRIC Index (the Index) consists of and is constructed pursuant to a systematic rebalancing process between three components: (i) the S&P BRIC 40 Index (Net Total Return) (Bloomberg Ticker: SPTRBRIC ) (the Underlying Index), (ii) a Hypothetical Deposit yielding at USD 1-month LIBOR (the LIBOR Rate), and (iii) a Hypothetical Borrowing based on the LIBOR Rate. The Underlying Index is designed to track the performance of 40 leading companies from the emerging markets of Brazil, Russia, India and China (the BRIC countries). The Index components' weightings are determined based on the volatility of the Underlying Index compared to a pre-defined target level.
The Index systematically varies its exposure to its three components depending on the annualized 20-day historical volatility of the Underlying Index (the Historical Volatility”) relative to a target volatility of 18% (the Target Volatility):
- When the Historical Volatility exceeds the Target Volatility, the Index is less than 100% exposed to the Underlying Index and will be exposed, in whole or in part, to the Hypothetical Deposit. The greater the excess of the Historical Volatility over the Target Volatility, the lesser the exposure of the Index to the Underlying Index and the greater the exposure of the Index to the Hypothetical Deposit. In this case, the Index is not exposed to the Hypothetical Borrowing.
- When the Historical Volatility is less than the Target Volatility, the Index is more than 100% exposed to the Underlying Index, subject to a maximum of 200% exposure. This leveraged exposure to the Underlying Index is deemed financed by the Hypothetical Borrowing. The greater the Historical Volatility decreases from the target volatility, the greater the exposure of the Index to the Underlying Index and the Hypothetical Borrowing. The Hypothetical Borrowing will have a negative impact on performance of the Index. In this case, the Index is not exposed to the Hypothetical Deposit.