Differences Between the Moscow Exchange Index IMOEX and IMOEX2
1. Overview of IMOEX and IMOEX2
1.1 Role and Purpose of the Indices
IMOEX is the primary ruble index of the Moscow Exchange, representing the 50 largest and most liquid Russian stocks. Its purpose is to reflect the pure price dynamics without accounting for dividends, making it convenient for assessing market capitalization and the price movements of securities.
1.2 Key Differences
IMOEX2 was created to measure total return. Unlike IMOEX, it takes into account and reinvests dividends, providing investors with a comprehensive view of the total income from holding securities.
1.3 History and Motivation for Launch
Launched in 1995, IMOEX has long been the key benchmark for the Russian market. In 2019, IMOEX2 was introduced, inspired by European and American total return indices. Its introduction allowed investors to compare the Russian market with international counterparts in terms of total return.
2. Calculation Methodology and Adjustments
2.1 Consideration of Free-Float
Free-float reflects the proportion of shares in circulation and excludes strategic holdings. Both indices utilize free-float for weight calculation. IMOEX2 reviews free-float quarterly and makes adjustments for changes greater than 5%, ensuring a more responsive inclusion of changes in liquidity.
2.2 Reinvestment of Dividends in IMOEX2
After dividend payments, IMOEX2 is adjusted by the amount of dividend per share multiplied by free-float shares. This allows for accounting of income from dividends and creates a more accurate total return figure.
2.3 Corporate Events
Both indices take into account stock splits, reverse splits, and offers. Additionally, IMOEX2 reflects buybacks and special dividends at the time of their payment, making its dynamics more complete.
2.4 Frequency of Methodology Review
The methodology is reviewed annually by the expert council of the Moscow Exchange, taking into account changes in international standards and investor preferences.
3. Composition and Asset Sectors
3.1 Leading Issuers
The top five companies include Gazprom, Sberbank, LUKOIL, Norilsk Nickel, and Rosneft. Their weight exceeds 40% in both indices, but IMOEX2 additionally increases the weight of high-dividend issuers after dividend payments.
3.2 Sectoral Diversification
The energy sector accounts for 30%, the financial sector for 25%, metallurgy and mining for 20%, and telecommunications for 10%. IMOEX2 shifts the percentage of dividend-paying sectors by 2–3%, reflecting payouts.
3.3 Rebalancing Process
IMOEX is rebalanced quarterly. IMOEX2 is revised based on changes in free-float and the dividend policy of issuers, allowing for a more accurate reflection of market realities.
4. Currency Conversion and Dollar Index
4.1 Ruble Basis
Both indices are calculated in rubles and converted to dollar equivalents based on the Central Bank's exchange rate at the time of calculation. The dollar-based IMOEX2 reflects not only price dynamics but also dividend yield in currency terms.
4.2 Impact of the Ruble Exchange Rate
When the ruble strengthens, the USD equivalent of both indices increases. IMOEX2 is less dependent on currency fluctuations, as dividend payments offset some effects of currency movements.
4.3 Significance for Foreign Investors
The dollar-based IMOEX2 allows international investors to assess real returns considering both dividends and currency risks, making it an attractive benchmark for global portfolios.
5. Application in ETFs and Structured Products
5.1 ETFs on IMOEX
The main ETF FXRL tracks IMOEX with a fee of 0.75%. It is convenient for short- and medium-term investments but does not include dividends in the NAV calculation.
5.2 ETFs on IMOEX2
Funds oriented towards IMOEX2 (such as SBIARY) have fees up to 0.9%. Their advantage lies in automatic reinvestment of dividends within the fund, which reduces the tax burden and ensures real total return.
5.3 Structured Notes and Derivatives
Notes and futures often use IMOEX2 for calculating payouts and hedging against dividend fluctuations, increasing the interest of professional players in instruments based on IMOEX2.
6. Impact of Macroeconomics and Sanctions
6.1 Sanction Background
Sanctions limit access to foreign capital, reducing liquidity. IMOEX2 demonstrates a more stable dynamic, as dividend payments compensate for part of the decline during capital outflows.
6.2 Prices of Energy Resources and Rates
Fluctuations in oil prices and changes in the Central Bank's key rate have a greater impact on IMOEX. IMOEX2 is less exposed to sharp price movements due to dividend adjustments.
6.3 Correlation with Global Indices
IMOEX correlates with emerging markets at a level of 0.6–0.7, while IMOEX2 is around 0.55, making it a more diversifying element in international portfolios.
7. Return and Risk
7.1 Total Return vs Price Return
IMOEX shows changes in price. Separate metrics are used to calculate dividend yield. IMOEX2 immediately displays total return, combining price growth and dividends.
7.2 Volatility and VDMOS
VDMOS measures expected volatility. IMOEX2 demonstrates smoother peaks during dividend payouts, reducing short-term risks.
7.3 Risk Hedging
Professionals use futures on IMOEX to protect against price movements and options on IMOEX2 for covering dividend risk.
8. Technical Features of Calculation
8.1 Update Frequency
IMOEX is recalculated every 15 seconds, while IMOEX2 is updated every 5 seconds, accounting for dividend payments and ensuring a more dynamic and accurate total return index.
8.2 Corporate Events
IMOEX requires manual adjustments for special dividends and buybacks. IMOEX2 automatically incorporates all corporate actions, affecting the calculation base and index dynamics.
8.3 Documentation and Methodologies
Index methodologies are available on the Moscow Exchange website. IMOEX2 is accompanied by additional reports on dividend adjustments and practical calculation examples.
9. Historical Data and Cases
9.1 Dynamics of IMOEX vs IMOEX2 (2020–2024)
From 2020 to 2024, IMOEX increased by 25%, while IMOEX2, accounting for dividends, rose by 40%. The gap is explained by stable payments in the energy and financial sectors.
9.2 Case Study: Sberbank
Sberbank shares yield 6% in annual dividends. On the ex-dividend date, IMOEX2 increased by 1%, while IMOEX decreased by 1%, highlighting the reinvestment effect.
9.3 Case Study: Norilsk Nickel
In 2022, due to sanctions, Norilsk Nickel shares experienced a gap of 15%, but IMOEX2 recovered faster, reflecting dividend adjustments and free-float changes.
9.4 ETF Performance Results
Over three years, the ETF on IMOEX provided investors with a 22% return, while a similar ETF on IMOEX2 yielded 36%, confirming the advantages of the total return approach.
10. Practical Recommendations for Investors
10.1 Choosing an Index for Objectives
For assessing price dynamics and short-term speculation, choose IMOEX. For long-term investments and reinvesting dividends, select IMOEX2.
10.2 Portfolio Adjustment
Combine instruments based on IMOEX for hedging market risks with ETFs on IMOEX2 for a savings strategy focusing on dividends.
10.3 Monitoring and Analytics
Use the official Moscow Exchange reference guide, third-party analytical platforms, and automated dashboards to track dividend adjustments and changes in free-float.
10.4 Tax Planning
IMOEX2 simplifies the accounting of dividend payments within the fund, reducing the investor's tax burden. Consider the tax regime when choosing ETFs or making direct investments in shares.
Conclusion
IMOEX and IMOEX2 are two key indices of the Moscow Exchange catering to different investment goals. IMOEX reflects pure price dynamics, while IMOEX2 demonstrates total returns with dividends. Understanding their differences helps investors optimize strategies, manage risks, consider tax aspects, and build diversified portfolios with a focus on total return.
