IN THIS LIST

Exploring Korean Dividend Opportunities

Measuring Board Gender Diversity across S&P ESG Indices

Indexing Islamic REITs

Talking Points:The Evolution of Index Investing in the Middle East

ESG Investing in U.S. Investment Grade Credit

Exploring Korean Dividend Opportunities

Contributor Image
Jason Ye

Director, Factors and Thematics Indices

S&P Dow Jones Indices

Contributor Image
Izzy Wang

Senior Analyst, Factors and Dividends

S&P Dow Jones Indices

Introduction

In the paper Analyzing High Dividend Yield Strategy in Korea, we studied the Korean dividend market and concluded that a portfolio formed by Korean high-dividend yield stocks has historically outperformed the broad market portfolio.  In this paper, we will introduce how practitioners can track opportunities from high dividend strategies in the Korean market through an indexing approach.

The Importance of Dividends

Dividend can be critical in equity investments for three reasons: 1) dividends are a significant source of total returns in the equity market; 2) dividend strategies can serve as an alternative for income-generating investors; and, 3) dividends as a factor have historically generated excess total returns in empirical research.

Dividend Contribution to Total Returns

In the U.S., dividends and dividend reinvestment accounted for over one-third of S&P 500® total return since 1936.  Exhibit 1 shows the breakdown of market total returns into price return and return from dividends and dividend reinvestment.  Globally, over 25% of total returns in the past 10 years came from dividends and dividend reinvestment.  In Korea, return from dividends and dividend reinvestment contributed to nearly one-half of the total returns of the Korean equity market in the past decade.

Exploring Korean Dividend Opportunities: Exhibit 1

pdf-icon PD F Download Full Article

Measuring Board Gender Diversity across S&P ESG Indices

Introduction

According to numerous studies,1 having a gender-diverse board is a key indicator of good corporate governance.2  The gender diversity of a board of an investee company is also one of the mandatory sustainability indicators3  that financial market participants are required to assess and report on under the EU’s Sustainable Finance Disclosure Regulation (SFDR).4  Using the S&P Global SFDR dataset,5  we examine this metric in the context of the S&P ESG Indices.

First, we observe how the proportion of women on boards varies across countries (see Exhibit 1).  On average, French firms have the most gender-balanced boards.  This is unsurprising, given that the French government enforces a minimum of 40% women on boards,6  a requirement that may follow across the EU.7  Meanwhile, all Qatari firms have an entirely male board.

Measuring Board Gender Diversity across S&P ESG Indices: Footnote

Measuring Board Gender Diversity across S&P ESG Indices: Exhibit 1

In terms of sectors, firms operating in Energy, Consumer Staples, Information Technology and Health Care have a greater-than-average number of women on their boards, while Materials has the lowest average (see Exhibit 2).

Measuring Board Gender Diversity across S&P ESG Indices: Exhibit 2

pdf-icon PD F Download Full Article

Indexing Islamic REITs

Contributor Image
Michael Orzano

Head of Global Exchanges Product Management

S&P Dow Jones Indices

Publicly traded property stocks, including real estate investment trusts (REITs), allow market participants to obtain exposure to real estate, an illiquid asset class, without sacrificing the liquidity benefits of listed equities. They also typically offer relatively high dividend yields, may serve as an inflation hedge and could help to diversify a portfolio comprised of several asset classes. These characteristics have contributed to the appeal of REITs among both conventional and Shariah investors. Shariah-compliant real estate indices are designed to provide Islamic investors with a wider range of tools to evaluate the performance of Shariah-compliant real estate equity funds and to support ETFs and other index-based financial products.

What Is a Shariah-Compliant REIT?

The S&P Shariah and Dow Jones Islamic Market Indices evaluate REITs using the same, globally consistent methodology utilized to screen all equity securities. As shown in Exhibit 1, companies must meet both business activity and financial ratio screens in order to be included in the Islamic index.

While real estate investing tends to align with Shariah principles from a business activity standpoint, some real estate companies have exposure to non-permissible income sources such as gambling, alcohol and banking via their tenants' underlying businesses. Many REITs also tend to have relatively large debt holdings and therefore, often fail the leverage ratio requirement.

Indexing Islamic REITs: Exhibit 1

It is important to note that several countries, such as Malaysia, have specific Islamic REIT designations often referred to as i-REITs. These entities are considered Shariah-compliant by S&P Shariah and Dow Jones Islamic Market Index methodologies regardless of whether they meet the specific thresholds described in the methodology, given that they are overseen by Shariah boards that certify their operations as fully Islamic in nature.

pdf-icon PD F Download Full Article

Talking Points:The Evolution of Index Investing in the Middle East

Contributor Image
John Welling

Director, Global Equity Indices

S&P Dow Jones Indices

Passive investing has accelerated throughout MENA, and adoption has become more widespread. Assets within ETFs and passive mutual funds listed in the region surpassed USD 500 million for the first time in May 2022. As regulation and markets evolve and asset managers embrace passive strategies, learn more about the indices that are fueling this growth.

  1. What can you tell us about the growth of passive investing in the Middle East?

    Although passive investing in the region is still in its early stages, the growth rate has been steadily building in recent years. Saudi Arabia was the first adopter of indexing, although the UAE has recently taken the lead. Meanwhile Kuwait, the second largest investment base, has yet to report passive funds. According to research from Chimera, there are currently 12 ETFs listed on the MENA markets—6 in the UAE, 3 in Saudi Arabia, 2 in Qatar, and 1 in Egypt. Six of these have been listed in the past two years.

    However, it is also important to note that many in the region invest via index products that are domiciled in Europe or other global markets, so it is difficult to gauge the full scope and growth of indexing driven by regional investors.

    1. What are the key drivers for the acceleration of passive investing in the MENA region?

      Similar to what we’ve seen in many other parts of the world, the MENA investment community recognizes the benefits of index-based investing, notably the lower costs and greater transparency relative to actively managed funds. In addition, the inability of most active funds to outperform broad benchmarks has also been a key contributor to the adoption of passive investing.

      In our first edition of performance finding for the MENA region, the SPIVA MENA Year-End 2021 Scorecard, we published the performance of actively managed MENA equity funds denominated in local currencies against the performance of their respective S&P Dow Jones Indices (S&P DJI) benchmark indices over 1-, 3-, 5- and 10-year investment horizons. Over a five-year period ending Dec. 31, 2021, 88% of active MENA equity funds underperformed the S&P Pan Arab Composite, while 95% of GCC funds similarly lagged the S&P GCC Composite, and 92% of Saudi funds underperformed the S&P Saudi Arabia over the same period.

    Talking Points:The Evolution of Index Investing in the Middle East: Exhibit 1

    pdf-icon PD F Download Full Article

ESG Investing in U.S. Investment Grade Credit

Contributor Image
Nicholas Godec

Senior Director, Head of Fixed Income Tradables & Private Markets

S&P Dow Jones Indices

Introduction

Assets tracking ESG-based investment strategies have been booming recently. While ESG demand has increased in recent years, there’s been additional appetite in the wake of the COVID-19 pandemic. ESG refers to three key aspects of sustainability and ethical business practices: environmental, social and governance.  When measured and filtered for, ESG-based investing can provide a way for capital to flow to firms that engage in business lines and practices conducive to sustainability and high standards of ethics.  Much in the way investors have long understood risk factors related to credit, interest rates and idiosyncrasies, ESG metrics seek to capture real risk factors facing investors.

With the launch of the iBoxx MSCI ESG Advanced USD Liquid Investment Grade (IG) Index (IBOXIG ESG), the U.S. IG corporate bond market has a crucial measure for the tradable ESG IG credit market.  The IBOXIG ESG selects from the iBoxx USD Liquid Investment Grade Index (IBOXIG) universe, and then applies climate and values-based screens to create an index composed of the IBOXIG entities with above-average ESG scores relative to their industry peers.  The ESG screens exclude flagged business lines, as well as firms where the percent of revenue is linked to flagged business practices.

The climate-based screens remove issuers from the Oil & Gas sector, issuers with industry ties to fossil fuels and issuers scoring below a defined threshold for environmental controversy.  The values-based screens remove a variety of controversial business activities including adult entertainment, alcohol, civilian firearms, controversial weapons, privatized prisons, gambling, genetically modified organisms, nuclear power, nuclear weapons, palm oil, predatory lending and tobacco, as well as issuers violating the United Nations Global Compact (UNGC).  The index also removes issuers with MSCI ESG ratings of BB and below and issuers below a defined threshold for overall controversy.

pdf-icon PD F Download Full Article
Processing ...