IN THIS LIST

S&P Target Date Scorecard Mid-Year 2021

U.S. Equities Market Attributes October 2021

S&P Latin America Equity Indices Quantitative Analysis Q3 2021

U.S. Equities Market Attributes September 2021

ETF Transactions by U.S. Insurers in Q2 2021

S&P Target Date Scorecard Mid-Year 2021

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Hamish Preston

Director, U.S. Equity Indices

SUMMARY

  • The S&P Target Date® Scorecard provides performance comparisons and analytics covering the target date fund (TDF) universe.
  • The S&P Target Date Index Series offers representative benchmarks for TDFs. The series is investable, comprises consensus-derived asset allocation weights, and its composition is known in advance of evaluation periods.
  • After recovering all of their COVID-19-related losses in 2020, continued optimism over the health of the U.S. economy helped U.S. equities to continue their upward trajectory in the first half of 2021.
  • Economic reopenings offered a particular boost to smaller companies, which are typically more domestically focused in their revenue exposures. Indeed, small caps led the way over the 12-month period ending June 30, 2021; the S&P Small Cap 600® (up 67%) beat both the S&P MidCap 400® (up 53%) and the S&P 500® (up 41%).
  • Unsurprisingly, far-dated S&P Target Date Indices once again posted higher returns than their nearer-dated counterparts; the former were helped by their greater equity allocations.
Exhibit 1

  • But as we have highlighted before, nearer-dated S&P Target Date Indices outperformed over all time horizons on a risk-adjusted basis. The risk reduction from allocating more heavily to fixed income—a typically less volatile asset class compared with equities—more than compensated for the lower returns.
Exhibit 2
  • The relative returns of TDFs with fewer assets improved compared with our previous reports. Equal-weighted returns were higher than asset-weighted returns in five vintages over the one-year horizon and in seven vintages over the five-year period. However, the picture was little changed over the three-year horizon; asset-weighted returns were higher across the board.
  • S&P Dow Jones Indices also produces S&P Target Date Style Indices. The “To” style indices aim to reduce the impact of market drawdowns around the expected retirement date, while the “Through” style indices aim to mitigate longevity risk—the risk of outliving one’s assets in retirement. Hence, “Through” style indices have higher equity allocations than “To” indices.
  • “Through” style indices posted higher returns than their “To” counterparts, while “To” style indices posted lower volatilities. Overall, near-dated “To” style indices posted higher risk-adjusted returns than their “Through” counterparts. The opposite was true for far-dated style indices.

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U.S. Equities Market Attributes October 2021

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Howard Silverblatt

Senior Index Analyst, Product Management

KEY HIGHLIGHTS

U.S. Equities Market Attributes October 2021

MARKET SNAPSHOT

The S&P 500 has been “up and down and over and out, and I know one thing: each time I find myself layin’ flat on my face, I pick myself up and get back in the [market].”  That’s investing, and I’m glad I do it.  October is known for its volatility and market crashes (Oct 19, 1987: -20.47%; Oct 28, 1929: -12.34%; Oct 29, 1929: -10.16%), so after September’s 4.76% decline (the index’s first monthly decline since January 2021’s 1.11% decline, and the worst since March’s 2020’s -12.51%) not much was expected, and concern was high.  While volatility opened the month (the first three days each moved at least 1%), the index then calmed down to post mostly small gains, as September’s loss was made back, and it continued upward, posting five new closing highs (59 YTD, tied for third since 1928), closing the month at one of them and above 4,600 for the first time (4,605.38).  What helped the S&P 500 turn around, besides a steady stream of individuals buying and some professional bargain hunting, were (again) higher earnings than expected (80.8% beat rate), as sales were set to post a new record (76.6% beat rate), with operating margins coming in at 13.33%, compared to the average of 8.12% (from Q1 1993)—“follow the money.”  Other “boosters” were positive economic reports (even when they missed expectations), slowing COVID cases (as there appears to be a new variant, Delta Plus), more vaccinations (slow, but there is growth, as the term “herd immunity” died), and continued low (but not steady) interest rates (the 10-year’s trading range was 1.46%-1.69%).  In the end (and it ain’t over), market optimism won, with the index closing up 6.91% for the month, up 22.61% YTD, and ending October on a new closing high.  At some point the market has to correct, but if you’re not in it for the gains you’re most likely not following the money (and out of a job).

On Capitol Hill, Congress raced to find a compromise on the USD 3.5 trillion education, environmental, and health bill, which would permit a vote on the USD 1 trillion infrastructure bill.  Biden outlined an adjusted social spending program (education, environmental, and health bill) for USD 1.85 trillion, half the original USD 3.5 trillion bill, as he traveled to Europe for the G20 meeting (his second major trip outside the U.S.).  He will also attend a U.N. climate conference (in Glasgow, Scotland) without the U.S. climate bill, which is still being negotiated in Congress (with his new outline).  Congress approved a temporary extension bill for the national debt through Dec. 3, 2021—the same expiration date as the temporary budget bill, practically guaranteeing a replay of last-minute negotiations and volatility.  The U.S. and Chinese presidents will meet, as Biden and Xi Jinping agreed to hold a virtual summit this year, as trade and competition are expected to be at the top of the list, with political issues second.  After Biden pushed for it, the Port of Los Angeles, one of the busiest ports in the country, started to operate 24 hours a day and 7 days a week to ease cargo bottlenecks and U.S. supply issues.  The U.S. fiscal 2021 (September) deficit came in at USD 2.9 trillion, second only to 2020’s USD 3.1 trillion deficit (the last surplus was in 2001, at USD 127 billion).

Health care issue Merck (MRK) said it would seek emergency authorization for its oral COVID-19 treatment.  Health care issue Pfizer’s (PFE) vaccine was approved by the FDA for first doses for children 5-11 years of age, with Moderna releasing data showing positive responses for its vaccine in children.  The U.S. approved (via the FDA and the CDC) booster shots for the three major vaccines (Pfizer, Johnson & Johnson, and Moderna), as it also approved the mixing of the booster shot.  China started to vaccinate children as young as three, as the country’s virus count continued to increase.  Melbourne exited its lockdown amid vaccination progress.  Russia ordered most workers to take a week off (Oct. 30 through Nov. 7, 2021), as it tried to break the COVID-19 spread.  The number of new cases of COVID-19 in the U.K. surged, as some saw a new strain of Delta variant, referred to as Delta Plus.  Several U.S. companies (such as General Electric [GE] and Union Pacific [UNP]) continued to announced vaccine mandates for employees to comply with a U.S. Dec. 8, 2021, mandate set for federal contractors.  Southwest Airlines (LUV), however, dropped a proposal to put unvaccinated staff on unpaid leave after a pilot shortage, which forced it to cancel over 2,000 flights.

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S&P Latin America Equity Indices Quantitative Analysis Q3 2021

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Michael Orzano

Senior Director, Global Equity Indices

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Silvia Kitchener

Director, Global Equity Indices, Latin America

Latin American equities had a rough Q3 2021, as the S&P Latin America BMI fell 14.7% in USD terms, driven by a steep drop in Brazilian equities and the U.S. dollar strengthening against local currencies. This weak result offset sizable gains from earlier in 2021, leaving the regional benchmark with a 7% loss YTD. However, on a 12-month horizon, the S&P Latin America BMI remained up 25.4%, outperforming the S&P Emerging BMI by about 5%.

While recent political uncertainty and civil unrest in the region have contributed to these results, on a global perspective, events abroad also have had an impact on equities, with emerging markets being the most affected. The S&P 500® ended the quarter nearly flat, up 0.6%, after reaching new records during late August and early September. Uncertainty over China’s Evergrande Group’s debt negotiations also had a negative effect on global markets; the S&P/BMV China SX20 lost 15.7% and the S&P Emerging BMI decreased 6.2% during Q3.

However, at a country level, results were mixed. The countries that performed the best during Q3 were Argentina, Colombia, and Mexico, which had positive returns in local currency as demonstrated by the S&P MERVAL Index (24.0%), the S&P Colombia Select Index (8.7%), and the S&P/BMV IRT (2.8%), respectively. The case of Argentina is particularly noteworthy, with the S&P MERVAL Index posting solid returns of 51.0% in local currency and 28.7% in U.S. dollar terms YTD, making it an outlier in the region. On the flip side, the S&P Brazil BMI and the S&P/BVL Peru Select 20% Capped Index were the underperformers of the group in Q3, down 13.9% and 4.9%, respectively. Chile’s S&P IPSA was nearly flat for the quarter.

All sectors across the S&P Latin America BMI posted negative returns in Q3. Procyclical sectors, such as Consumer Discretionary, Information Technology, and Materials, were the most affected, losing 32.6%, 28.2%, and 21.4%, respectively. Defensive sectors, such as Real Estate and Utilities, had better relative performance, losing only 12.7% and 7.8%, respectively. Lastly, the sole bright spot during the quarter from the sector perspective was Communication Services, which ended nearly flat.

In times of high volatility, it is interesting to see how different factor indices perform under current market conditions. Perhaps unsurprisingly, we saw that in Brazil and Mexico, value, low volatility, and risk-weighted indices performed best in Q3, as lower volatility and value-oriented companies were in favor in a generally risk-off environment. In Q3, the S&P/BMV IPC CompMx Enhanced Value Index gained 2.3% in MXN, while the S&P/B3 Enhanced Value Index returned -1.9% in BRL.

Shifting focus to the longer term, we see that the majority of factor indices outperformed the broader market over the past 10 years, illustrating the benefits of using a non-market-cap-weighted indexing approach.

As the end of the year approaches, many risks are still clouding equity markets in Latin America. The continued spread of COVID-19 variants continues despite increased vaccination rates. Important local elections that will shape the new policies of several countries in the region are also slated to occur. Stay tuned for what promises to be an exciting year end in the region.

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U.S. Equities Market Attributes September 2021

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Howard Silverblatt

Senior Index Analyst, Product Management

KEY HIGHLIGHTS

U.S. Equities Market Attributes September 2021

MARKET SNAPSHOT

The S&P 500 opened the month well, posting a new closing high (54th of the year), on Sept. 2, 2021 (4,536.95; it has posted at least one new closing high in each month since November 2020). It should have closed the month and quarter then (and missed all the fun in Washington), but instead, it went on to live up to the September tradition of being the worst month of the year (averaging a decline of 0.99%; the month is negative 53.8% of the time), as it struggled (to put it nicely) the rest of the month. To be fair, the damage was controllable and the sells were orderly (with the worst one-day drop being -2.04%, on Sept. 28, 2021), as the month ended with a 4.76% decline—the first monthly decline since January 2021's -1.11%, and the worst since March 2020's 12.51% decline. September ended leaving the index up a modest 0.23% for the quarter (Q3 2020 was up 8.47%), 14.68% YTD (15.92% with dividends), up 27.21% (30.62%) from the pre-COVID-19 Feb. 19, 2020, high (3,386.15), and up 92.52% (97.28%) from the March 23, 2020, recent low (2,237.40). To be fair again (and I don't want to make a habit of it), September is when the market gets back to business after summer vacation, as do those nice people in Washington. This year, however, seemed to put more on DC's plate than the annual budget, which was approved and signed hours before the deadline (debt limit and a few stimulus programs remain in negotiations), and normal political games, which have increased in intensity. The Fed set a tentative schedule for tapering to start this year (and end mid-2022), as it indicated a potential interest rate increase in late 2022 or early 2023. The market initially accepted the two schedules with a slight decline, rather than a correction, but then it focused on higher interest rates, as the 10-year U.S. Treasury Bond rose above 1.50% (reaching 1.56% and closing at 1.49%; it closed September 2020 at 0.68%, September 2019 at 1.68%, and September 1981 with an extra digit, at 15.85%). In the background was also the YTD gains waiting to be taken (20.41% at the end of August), the impact of the COVID-19 variant, which most on the Street still see as "transient," and the Fed's makeup (two resignations and the Warren-Powell issue, which on a higher level is more about the battle within the Democratic party).

On my front page were the new records for Q2 2021 stats: earnings were up 9.7% over Q1 2021 and 94.2% over a COVID-19-depressed Q2 2020; sales came in up 5.5% from Q1 and 21.7% year-over-year; and margins increased 13.55% (the average from Q1 1993 is 8.07%). Buybacks and dividends also did well (Q3 dividend payments have set a new record, and we'll do a release next week; Q2 buybacks were 11% away from a record).

At this point, a nice shakeout has been due for so long that when it comes, there should be few surprises (but there will be some). Higher interest rates, short-term (hopefully) COVID-19 spread, shortages, and volatile U.S. economic dominance may all justify a downturn, but in the end, one is due (and possible if the buying stops). The bottom line for September in the market is if -4.76% is the payback (which it likely won't be; more could be expected), then "play it again, Sam" (absent COVID-19). The S&P 500 closed at 4,307.54, down 4.76% (-4.65% with dividends), from last month's 4,522.68 close, when it was up 2.90% (3.04%) and the prior month's 4,395.26 close, when it was up 2.27% (2.38%). The three-month return was 0.23% (0.58%), the YTD return was 14.68% (15.92%), the one-year return was 28.09% (30.00%), and the index was up 27.21% (30.62%) from its pre-COVID-19 Feb. 19, 2020, closing high. The Dow® ended the month at 33,843.93, down 4.29% for the month (-4.20% with dividends), from last month's 35,360.73 close, when it was up 1.22% (1.50%), as the three-month return was -1.91% (-1.46%), the YTD return was 10.58% (12.12%), and the one-year gain was 21.82% (24.15%).

The S&P 500 posted 1 new closing high in September (12 in August) and 54 YTD; it has posted new closing highs in every month since November 2020 (it missed October 2020 but had new closing highs in August and September 2020). The index closed up 27.21% (30.62%) from its pre-COVID-19 Feb. 19, 2020, closing high (73 new closing highs). Since Biden won the Nov. 3, 2020, U.S. election, the S&P 500 has gained 27.85% (29.62%), and there have been 52 closing highs since his inauguration. The bull market was up 92.52% (97.28%) from the low on March 23, 2020. The index closed down 5.06% from its closing high of 4,536.95 (set Sept. 2, 2021).

On Capitol Hill, the U.S. Congress raced to find a compromise on the debt and budget in order to avoid a government shutdown. Congress passed a stop-gap budget through Dec. 3, 2021, with Biden signing hours before the deadline. The USD 3.5 billion healthcare, education, and climate bill started to take shape, including a 2% tax on buybacks by publicly traded issues, but remained a work in progress. A vote on the USD 1 trillion Infrastructure bill was delayed into October as talks continued, as progressives attempted to link the USD 3.5 trillion climate, education, and social bill to it.

The S&P 500 one-year target price increased for the month (even though the index declined), as it broke 5,000 for the first time, at USD 5,018 (a forward high estimate), a 16.5% gain (10.4% last month) from now (USD 4,993 last month and USD 4,905 the previous month). The Dow target price was USD 39,270 (a forward high estimate), a 16.0% gain (10.8%) from now (USD 39,166 last month and USD 38,796 the month before).


ETF Transactions by U.S. Insurers in Q2 2021

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Raghu Ramachandran

Head of Insurance Asset Channel

INTRODUCTION

The second quarter of 2021 saw as much trading as the first, as insurance companies continued to trade ETFs actively.  While trading volume was lower relative to 2020, insurance companies traded in the first half of the year almost as much as they held in their portfolios at the beginning of the year.  In this report, we analyze these trades and explore the differences between the two quarters.

ETF TRADES

In the first quarter of 2021, insurance companies traded USD 15 billion in ETFs.  In the second quarter, insurance companies increased this amount slightly to USD 16 billion.  In the first half of the year, insurance companies traded USD 31 billion in ETFs.  The amount of trading was slightly lower than for the same period in 2020, when companies traded USD 38 billion.  However, the COVID-19 crisis affected the trading volume in 2020.

As seen before, trading volume isn’t uniform over the period.  Insurance companies traded more at the end of each quarter, with irregular spikes during the middle of the quarters (see Exhibit 1).

In terms of asset classes, the trading pattern was markedly different between the first and second quarters.  In the first quarter, the trades were roughly even between Equity and Fixed Income ETFs.  However, trading in Equity ETFs dominated the second quarter (see Exhibit 2).

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