Excluding assets ensures the asset which has been excluded will not become allocated in the index. If the excluded asset falls within the index range such that it would have been allocated if it had not been excluded, the asset will be replaced with the asset of the next highest ranking.

Imagine we have an index of the top 10 assets. The current portfolio would look as follows:

  • Rank 1
  • Rank 2
  • Rank 3
  • Rank 4
  • Rank 5
  • Rank 6
  • Rank 7
  • Rank 8
  • Rank 9
  • Rank 10

Now, let’s say we want to exclude the asset which is currently rank 5. The resulting index for our portfolio would be the following:

  • Rank 1
  • Rank 2
  • Rank 3
  • Rank 4
  • Rank 6
  • Rank 7
  • Rank 8
  • Rank 9
  • Rank 10
  • Rank 11 

Notice how Rank 5 is no longer in the index, however “Rank 11” has now been included. This allows us to keep 10 assets in our portfolio, even when an asset has been excluded.

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