The Takeaway
It can be challenging to identify which companies are most relevant to a given theme. Companies typically do not report their financial results in a manner that clearly aligns with a targeted theme, and approaches to estimate exposure often rely on models that are not transparent and that can produce false positives.
The Morningstar Thematic Consensus Indexes attempt to address these challenges by targeting companies widely associated with a specific theme based on fund holdings data. The aim is to focus on companies where there is the greatest consensus of thematic relevance.
The Morningstar Theme Consensus Fit Scores underpinning these indexes are driven by how widely each stock is held across funds tagged to the target theme. Those scores are adjusted to de-emphasize companies associated with multiple unrelated themes.
The Morningstar Thematic Consensus Indexes capture a market-driven view of thematic relevancy through an objective scoring model that leverages public fund holdings data to identify the stocks most widely held across funds mapped to the targeted theme. They also seek to mitigate exposure to companies associated with multiple unrelated themes. The indexes are built for scale, with liquidity screens, turnover buffers, and a weighting scheme that incorporates float adjusted market cap in addition to the thematic exposure score to support high investment capacity.
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