Concinnity MsOS Annual Universe Process

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At the end of each October, Concinnity creates an annual universe of stocks that we believe follow the Multi-stakeholder Operating System (MsOS). This universe is the foundation of all of our index products.

The starting universe of companies eligible for inclusion in the universe is comprised of US-exchange listed firms with a market capitalization greater than $2 billion. This starting universe is typically 1,200 to 1,600 companies.

Initial Screening

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From this starting universe, Concinnity applies a proprietary, two-step analysis to select companies. In the first step, Concinnity uses seventy information sources and public rankings to identify and evaluate companies based on their demonstrated ability to achieve positive outcomes across all five stakeholder groups. These information sources are vetted annually and weighted based on stakeholder focus, research methodology and third party or in-house analysis of a source’s potential as a leading indicator of corporate and/ or stock performance. Typically, 700 - 1000 companies pass this initial screening.

Concinnity creates an MsOS score for each company. This proprietary scoring methodology combines the initial screening data with ratings data from multiple research entities that specialize in various stakeholder assessment categories. This methodology uses classic multi-factor modeling techniques to sort, normalize, weigh, and roll up factors into categories, and finally an overall score. Categories include, but are not limited to: employee engagement, executive integrity, customer relationship quality, labor and human rights, and quality of financial reporting. Approximately 700-1000 companies are given a final score (others are not scored due to lack of data).

Finally, the MsOS score is combined with a fundamental-based Valuation overlay and size/sector/style risk balancing to create the final approved universe. The final annual universe typically consists of 300-350 companies. This universe is used as the eligible universe for all Concinnity's indices.

MsOS Scoring

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20 specialist research sources provide custom, proprietary data, in addition to the 70 public sources from Initial Screening. All data factors are rolled into categories. Categories are then weighted by materiality per industry. Materiality is determined by category backtesting, as well as the SASB Materiality Matrix.

Risk Management

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Size, sector, and style (growth vs value) exposures of an equal weighted universe compared to the S&P 500 are then calculated to determine the target number of stocks in each industry group. The companies with the highest MsOS scores in their industry are chosen for inclusion into the Annual Universe.

 

A valuation overlay is put on the companies to determine if a company is overvalued vs its revenue, earnings and free cash flow potential. This prevents extremely overpriced stocks from getting into the Annual Universe.

Index Construction

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Index Construction starts with the universe identified by the Concinnity Annual Universe. Various screening criteria are then applied to the universe, based on the index theme. All indices are reconstituted annually and rebalanced quarterly.