Frequently Asked Questions
What is the KLD Large-Mid Cap Social Index?
Who created the KLD Large-Mid Cap Social Index and why?
How many companies are in the Index?
What universe does the Index utilize?
How was the Index constructed?
How does KLD evaluate the ESG performance of a company?
Does the LMSI apply exclusionary screens to its selection process?
How is the LMSI weighted?
How is the Index maintained?
Who calculates the Index performance and values?
What determines turnover of the Index?
Are the constituents of the Index "socially responsible" companies?
How can I obtain a list of the constituents in the LMSI?
Can I be notified of changes to the Index?
How can I invest in the LMSI?
Can I start a mutual fund or an ETF based on the LMSI?
How can I obtain Index analytics for portfolio performance measurement and attribution?
What is the KLD Large-Mid Cap Social Index?
The KLD Large-Mid Cap SocialSM is a diversified benchmark for measuring the risk and return characteristics of large and mid cap U.S. portfolios that incorporate ESG performance into the equity selection process. The LMSI holds companies with the highest ESG rankings in each sector of the large and mid cap U.S. equity market. The LMSI is one of two composite indexes in the KLD Broad Market Social Index (BMSI) series.
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Who created the KLD Large-Mid Cap Social Index and why?
KLD Research & Analytics, Inc. created the Index in January 2001 to provide a diversified and comprehensive representation of the large and mid cap U.S. equity market available to investors seeking to integrate environmental, social and governance (ESG) criteria into their investment strategies.
How many companies are in the Index?
For most current number of companies on the index, please see the index Fact Sheet.
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What universe does the Index utilize?
The KLD Large-Mid Cap SocialSM Index (LMSI) is one of two composite indexes in the KLD Broad Market Social Index series, which includes a benchmark index, three sub-indexes and two composite indexes. The eligible universe for the BMSI is comprised of the 3,000 largest companies (by float-adjusted market capitalization) in the U.S. equity market on May 15th, or closest business day of each year. The 3,000 largest companies are further broken down into eligible universes for the large cap, mid cap, and small cap sub-indexes. The large cap-eligible universe is comprised of the 400 largest companies; the mid cap-eligible universe is comprised of the next 600 largest companies; and the small cap-eligible universe is comprised of the smallest 2,000 companies. The LMSI is comprised of companies in the KLD Large Cap Social Index (LCSI) and the KLD Mid Cap Social Index (MCSI) and has a universe that is comprised of the 1,000 largest U.S. equities.
How was the Index constructed?
The LMSI holds companies with the highest environmental, social and governance (ESG) rankings in each sector of 1,000 large and mid cap U.S. equities. KLD ranks companies by sector peer group according to ESG performance ratings. For each sector, key ESG performance indicators are identified and are given more weight in the rating process. KLD’s objective is to select the highest-ranked companies targeting 65% of the market capitalization of each sector. This process provides the constituents for the LMSI.
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How does KLD evaluate the ESG performance of a company ?
KLD’s ratings framework of over 65 indicators captures a company’s environmental, social and governance (ESG) performance by analyzing five key areas – environment; community and society; employees and supply chain; customers; and governance and ethics. To select companies for the LMSI, KLD conducts a comprehensive ESG performance evaluation of each eligible company.
The LMSI favors corporations that are:
- Strong stewards of the environment;
- Devoted to serving local communities and society generally;
- Committed to high labor standards for their own employees and those in their supply chain;
- Dedicated to producing high quality and safe products;
- Managing their company in an exemplary and ethical manner.
All companies selected for the LMSI must meet minimum ESG performance standards, as determined by KLD’s Sector Teams and the BMSI Committee. KLD recognizes that many companies will have some ESG concerns and gives careful consideration to how companies address the risks and opportunities they face in the context of their sector or industry and relative to their peers.
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Does the LMSI apply exclusionary screens to its selection process ?
No. In 2008 KLD expanded its ESG analytical framework to reflect the social and environmental impact of the production and sale of alcohol, tobacco, military weapons, firearms, nuclear power and gambling products and services. Previously, a company involved in any of these business activities was not eligible for the BMSI series if it exceeded specified revenue thresholds.
When evaluating the social and environmental impact of these types of companies, KLD takes into account the type of involvement as well as the amount of business derived from the provision of such products and services. The ratings of the majority of companies with involvement in these industries are negatively affected due to the social and environmental consequences of this exposure and thus are unlikely to be included on the LMSI.
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How is the LMSI weighted?
The LMSI is a float-adjusted market-capitalization weighted index.
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How is the Index maintained?
The LMSI reconstitutes every year on the third Friday of June along with the five other indexes in the BMSI series. KLD continually monitors the LMSI for events that would require changes to index composition. These events include: corporate actions, changes in environmental, social and governance (ESG) performance and deteriorating financial quality. KLD follows pre-determined rules for removing and adding companies due to corporate actions. Companies may be removed at any time during the, with the majority of changes due to corporate actions. The BMSI Committee makes the final decision on all changes to the Index related to ESG performance.
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Who calculates the LMSI performance and values?
The performance and values for the KLD Large-Mid Cap Social Index are calculated by Markit Group Limited.
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What determines turnover of the Index?
Between reconstitutions, KLD keeps turnover on the Index to a minimum. The majority of Index changes are attributable to corporate action. Most Index changes between reconstitutions are attributable to corporate actions. The majority of changes occur at reconstitution when KLD re-ranks companies in each sector to reflect changes to the market and to companies’ ESG ratings. The LMSI has turnover rate of approximately 2%-3%, typically, per year.
Are the constituents of the Index "socially responsible" companies?
KLD researches and monitors all LMSI companies and believes that the companies on the Index represent the values of the mainstream social investor.
However, KLD recognizes that no corporation is "perfect." In addition, because KLD's screens reflect the interests of a broad cross-section of social investors, not all LMSI companies will correspond to everyone's standards.
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How can I obtain a list of the constituents in the Index?
To purchase a current list of constituents, or to subscribe to daily or monthly constituents lists for all KLD Indexes, please contact indexes@kld.com.
Can I be notified of changes to the Index?
KLD does not provide advanced notification of additions to or removals from its Indexes. However, for a fee one can subscribe to daily constituents lists for KLD’s indexes. Please contact indexes@kld.com for more information.
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How can I invest in the Index?
KLD Indexes is a division of KLD Research & Analytics and does not manage any funds or money. However, KLD Indexes are licensed as investable products for individuals and institutions.
For a complete list of products based on KLD Indexes, please see the Product Fact Sheet.
Can I start a mutual fund or an ETF based on the Index?
KLD Indexes can serve as the basis for mutual funds, exchange-traded funds and separately managed accounts. Please contact indexes@kld.com to discuss licensing opportunities.
How can I obtain Index analytics for portfolio performance measurement and attribution?
KLD can provide clients with index data to measure portfolio performance and conduct attribution analysis. Please contact indexes@kld.com.
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