The SPDR KBW Insurance ETF (Ticker: KIE), seeks to replicate as closely as possible, before expenses, the total return performance of the KBW Insurance Index. Index selection methodology is very vague. The prospectus only states that the securities are selected to provide appropriate representation of the industry's diverse sub-sectors, including personal and commercial lines, property/casualty, life insurance, reinsurance, brokerage and financial guarantee. There is no mention of how securities are chosen, i.e. market cap, earnings, geographically, etc. The Index provider states that weighting scheme is float-adjusted modified market capitalization weighting. In reality, stock weighting is a hybrid between equal weighting and conventional capitalization weighting. The four largest stocks included in each this index were assigned maximum initial weights equal to the lesser of their actual capitalization weight or 10% in the reconstituted KBW Index. All other stocks with a capitalization weight of more than 4.5% were assigned initial weights of 4.5% in the reconstituted KBW Index. All companies with capitalization weights under 4.5% share equally in the weight available for redistribution. Security selection and security weighted is assumed to take place quarterly, although the reconstitution and rebalancing frequencies are not disclosed.
