Canadian Energy Income Index: Methodology
The Energy Income Index selection methodology is designed to combine the most profitable and liquid Canadian royalty trusts with the most highly focused and fastest growing oil sands producers using a tactical asset allocation model based on the trend in crude oil prices.
The Index constituent selection methodology was developed by Sustainable Wealth Management, LTD (”SWM”) as an effective, fundamental approach designed to select stocks from a group of companies primarily listed on the Toronto Stock Exchange.
The Canadian royalty trust constituent selection methodology utilizes multifactor proprietary selection rules to seek to identify those stocks that have historically provided the highest profitability in the sector and meet minimum distribution yield, market cap and liquidity thresholds. The oil sands producers are selected on the basis of their focus on oil sands production, current production rate and projected production during the next 10 years. The oil sands producers must also pass minimum market capitalization and liquidity thresholds. Index constituents are updated annually or whenever a major corporate event occurs such as a merger or acquisition.
The Energy Income Index allocates between the oil sands and royalty trust constituents according to the current price trend of crude oil. If the current quarter’s closing price is above the four quarter moving average price, crude oil is determined to be in a bull phase. If it is at or below the moving average price, crude oil is determined to be in a bear phase.
Crude oil price trends are evaluated at the end of each calendar quarter and tactical asset allocation adjustments are implemented on the first trading day of the new quarter.
Asset Allocation by Crude Oil Price Trend
| Bull Phase | Bear Phase | ||
|---|---|---|---|
| Oil Sands | 70% | Oil Sands | 30% |
| Income Trust | 30% | Income Trust | 70% |
More on Index Construction: Oil Sands Constituents
More on Index Construction: Royalty Trust Constituents
