IN THIS LIST

TalkingPoints: ESG Goes Mainstream in Australia – Get to Know the S&P/ASX 200 ESG Index

Index Construction Matters: The S&P SmallCap 600®

TalkingPoints: How to Engage ESG in More Meaningful Ways

InvestorTalks: Using AI to Measure Market Mood with Indices

FAQ: S&P Solvency II Capital Efficiency Corporate Bond Index

TalkingPoints: ESG Goes Mainstream in Australia – Get to Know the S&P/ASX 200 ESG Index

Contributor Image
Daniel Perrone

Director & Agile Transformation Lead

S&P Dow Jones Indices

With growing interest in environmental, social, and governance (ESG) investing around the world, S&P DJI has launched the S&P/ASX 200 ESG Index in order to provide a transparent measure of the Australian equities market with a sustainability lens.

1. Why is the S&P/ASX 200 ESG Index significant to the Australian market

The S&P/ASX Index Series has played a significant role in characterizing the performance of the Australian equity market since its inception in April 2000. Since then, the S&P/ASX 200 has served as the foundation for benchmarks and index-based investing strategies in Australia. The S&P ASX/200 ESG Index combines the broad-market coverage of the S&P/ASX 200 with improved ESG characteristics. By targeting 75% of each GICS® industry group’s float-adjusted market capitalization in the S&P/ASX 200, the S&P/ASX 200 ESG Index offers similar industry group weights to that of its benchmark, thereby resulting in a risk/return profile that closely tracks its underlying index.

The S&P/ASX 200 ESG Index is part of the S&P ESG Index Series, which is designed to help investors integrate ESG objectives without compromising their investment objectives. The indices enhance overall ESG performance, targeting companies that rank highly according to our S&P DJI ESG Scores. The index design allows this ESG performance boost to come at a low cost in terms of tracking error as well.

The index eligibility and constituent selection process are driven by the S&P DJI ESG Scores. These scores employ data gathered through SAM’s Corporate Sustainability Assessment (CSA), which SAM1 has developed and administered over the past 20 years. The CSA and resulting S&P DJI ESG Scores provide an unparalleled view into companies’ sustainability performance in Australia. The CSA raises corporate awareness on upcoming ESG issues, challenging Australian companies to think about emerging ESG risks and opportunities in their industries. As a result, the CSA helps identify companies that are ahead of the curve on these topics. The CSA also contributes toward more transparency and reporting on these issues to the benefit of the broader investment community.

2. How and why would market participants use this new index in their practice?

With the S&P/ASX 200 ESG Index, investors are now able to move ESG from the periphery of their portfolios into the core. By providing a similar risk/return profile to that of the S&P/ASX 200, it has become easier and more attractive to allocate more to ESG than ever before. In addition, the S&P/ASX 200 ESG Index methodology is simple and accessible to everyone, particularly to those considering making their first ESG investment. By offering improved ESG characteristics without needing to make too many exclusions, the tracking error of the S&P/ASX 200 ESG Index to the S&P/ASX 200 can be kept low. This profile makes the S&P/ASX 200 ESG Index appealing to institutions, retail investors, and the financial advisor community alike.

In addition, as with any of our benchmark solutions, this index has a range of potential applications, such as defining an investable universe, benchmarking investment performance, or supporting the construction of passive portfolios through investment vehicles like ETFs that are now available in the Australian market.

pdf-icon PD F Download Full Article

Index Construction Matters: The S&P SmallCap 600®

Contributor Image
Hamish Preston

Head of U.S. Equities

S&P Dow Jones Indices

Launched in 1994, the S&P 600 is designed to track the performance of small-cap U.S. equities and has outperformed the Russell 2000 by an average of 1.6% per year over the past 25 years. This outperformance highlights the importance of index construction; unlike the Russell 2000, the S&P 600 uses an earnings screen—companies must have a track record of positive earnings before they are eligible to be added to the index. The resulting quality factor exposure has played a significant role in explaining the S&P 600’s relative returns, and why it has been a harder benchmark for active managers to beat.

RELATIVE RETURNS COMPARISON: S&P 600 VERSUS RUSSELL 2000

Exhibit 1 shows the cumulative total returns for the S&P 600 and the Russell 2000 since Dec. 31, 1994. The S&P 600 posted higher annualized returns and lower volatility than the Russell 2000 over the entire period, and it outperformed the Russell 2000 in 17 of the past 25 full calendar year periods.

Index Construction Matters: The S&P SmallCap 600®: Exhibit 1

Exhibit 2 shows that the S&P 600 also typically outperformed the Russell 2000 over other horizons. Indeed, the S&P 600 outperformed over most rolling three-month, six-month, one-year, three-year, and five-year periods, with both the frequency and magnitude of outperformance increasing over longer time horizons.

Index Construction Matters: The S&P SmallCap 600®: Exhibit 2

pdf-icon PD F Download Full Article

TalkingPoints: How to Engage ESG in More Meaningful Ways

Contributor Image
Mona Naqvi

Global Head of ESG Capital Markets Strategy

S&P Global Sustainable1

The outperformance of funds that take environmental, social and governance (ESG) issues more seriously than their peers has reinforced why investors might want to integrate these factors into portfolios via the type of tools that S&P Dow Jones Indices has developed.

Encouraged by evidence of the materiality of ESG issues during the Covid-19 led volatility, there is greater appetite for sustainable themes in investor portfolios to align investments with one’s values and potentially generate higher risk-adjusted returns. At the same time, fuelled by greater transparency over how companies act and behave, and also spurred by trends in public opinion towards issues that matter to society as a whole, investors are seeking ways to leverage data and research to gain greater exposure to ESG factors.

Amid these trends, Mona Naqvi, Head of ESG Index Strategy for North America at S&P Dow Jones Indices (S&P DJI), spoke with AsianInvestor to explain the importance of financial materiality and other key ways to assess ESG, to help it be a core building block in portfolio construction.

pdf-icon PD F Download Full Article

InvestorTalks: Using AI to Measure Market Mood with Indices

INVESTORTALKS is an interview series where industry thinkers share their thoughts and perspectives on a variety of market trends and themes impacting indexing.

Indexing and artificial intelligence (AI) are democratizing access to institutional quality risk management. The S&P Riskcasting® Indices are designed to help keep risk in check, using AI to track signals of investor views on market risk and systematically adjusting allocations based on the signals received. S&P DJI joins Arnaud de Servigny to discuss how these innovative indices track the mood of the market to dynamically capture potential opportunities.

What's inside the S&P Riskcasting Index Series, and what is it designed to do?

S&P DJI: The index series is a rules-based, systematic multi-asset strategy that incorporates equity and fixed income. It uses a risk aversion signal to determine three different market states: bullish, neutral, or bearish. Based on the determined market state, the S&P Riskcasting Indices will allocate to different equity or fixed income indices. For example, the S&P 500® Riskcasting Index uses the S&P 500 and the S&P 10-Year Treasury Note Futures Index as its components, whereas the S&P 500 Low Volatility Riskcasting Index uses the S&P 500, S&P 500 Low Volatility Index, and S&P 10-Year Treasury Note Futures Index as its three components.

How does the risk aversion signal use S&P 500 options to measure the mood of the market?

Arnaud de Servigny: Generally, looking at risk in the finance industry, we tend to have backward-looking information on volatility and things like that. In a way, it is like looking in the rearview mirror while driving a car. What we want to do, however, is to look at what is going on right now or in the near future, and for this type of analysis we look at option markets. In the option markets, there are many different participants with many different views, and it is the diversity of these views that is interesting. If the overall market mood evolves in one direction or another, then this is something that is likely to have an impact on market performance, especially the equity market, which is what we want to capture.

pdf-icon PD F Download Full Article

FAQ: S&P Solvency II Capital Efficiency Corporate Bond Index

The S&P Solvency II Capital Efficiency Corporate Bond Index seeks to track the performance of qualifying global corporate infrastructure bonds that meet the criteria under Solvency II.  The index utilizes an independent third-party assessment to determine eligibility for each security.

  1. What is Solvency II?  The Solvency II regime provides a framework for insurance providers in the European Union (EU).  This also applies to global insurance regulators that adhere to the Solvency II framework.  Like the Basel framework for banking institutions, it focuses on three pillars to assess capital requirements, set risk management procedures, and perform supervisory reporting for adherence to the regime.

  1. To receive preferential capital requirements, securities must qualify for capital relief.  What are the criteria for qualifying for capital relief?

    The primary requirements include the following.

    • The entity “provides or supports essential public services.”
    • More than 75% of its revenues come from infrastructure investing.
    • The level of output or the usage and price are contractually fixed.
    • The main payers are entities with an External Credit Assessment Institutions (ECAI) rating and a credit quality step of at least 3.
    • The investing entity should be able to hold the investment to its maturity.
    • There is diversification in terms of location.
    • A substantial majority of the revenues come from infrastructures located in the Organisation for Economic Co-operation and Development (OECD).

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