The financial services consulting firm, Cerulli Associates, recently published a research study on the use of index-based products within the U.S. retail wealth management market. Their whitepaper aims to shed light on how asset managers, asset allocation model portfolio providers, wealth manager home offices and financial advisors can better utilize index provider solutions.¹

The study is the culmination of 293 financial advisor survey results, which are diversified across channel, practice assets under management (AUM), core market client size and advisor age. It excludes advisors with less than USD 50 million in AUM and those with more than 25% in institutional assets or defined contribution plans. The paper also aggregates the findings of 25 executive interviews with asset managers, technology providers, wealth manager home offices and individual financial advisors.

According to the research, the U.S. wealth management industry is experiencing a shift in value proposition where end-investors are increasingly relying on their financial advisor for their financial planning expertise rather than their investment management acumen. When asked to identify which factors are most important when selecting an advisor, 57% of affluent (i.e., USD 100,000 or more in investable assets) clients indicated that an advisor who takes the time to understand their needs and goals is extremely important, while only 45% said the same about the performance of their investments relative to the overall market.² Fund flow data supports this shift as the positive growth of index-based exchange-traded funds (ETFs) and mutual funds, as well as direct indexing separately managed accounts (SMAs), have outpaced their actively managed counterparts, a trend that is projected to continue through 2028 (see Exhibit 1).

Although Cerulli Associates forecasts increased usage of index-based strategies, Exhibit 2 indicates that advisors currently pursue an active approach in sub-asset classes they perceive as being less informationally efficient, such as small-cap equities, international fixed income, U.S. taxable and municipal fixed income, options-based assets and real assets. However, a future shift could be in the cards. Cerulli Associates' research suggests that financial advisors could expand their usage of index-based products beyond equities to fixed income as well,³ paralleling the growth of indexing in fixed income.⁴

In addition to surveying advisors on how they utilize index-based products, they also extracted insights on how they evaluate them. For example, Exhibit 3 shows that 82% of advisors indicated that the quality of the index design and methodology was a top-three factor when considering the index that underlies an ETF, and 60% of advisors said the same of index provider content and education. To learn more about how financial advisors think about index providers, Cerulli Associates created a series of advisor profiles located in the appendix of the whitepaper.

As the landscape of index-based products becomes increasingly crowded, the recent findings from Cerulli Associates highlight that asset and wealth managers should thoughtfully consider how to leverage index providers' solutions to stand out from the crowd.⁵ Strategies include going beyond traditional index data to drive product development and leveraging brand and content for product marketing and distribution. Embracing these strategies can not only differentiate firms but may also position them for success in the evolving retail wealth management market.

¹ The Cerulli Associates whitepaper "Redefining the Role of Index Providers" was sponsored by S&P Dow Jones Indices.

² Please see page 4 of Cerulli Associates' "Redefining the Role of Index Providers".

³ Please see page 10 and 11 of Cerulli Associates' "Redefining the Role of Index Providers" for more information on ETF product growth.

⁴ For more information on the growth of indexing in fixed income, please read "The Hare and The Tortoise - Assessing Passive's Potential in Bonds".

⁵ Please see section 4, pages 12-17 of Cerulli Associates' "Redefining the Role of Index Providers" for more information.

The posts on this blog are opinions, not advice. Please read our Disclaimers.

The private credit market has grown significantly, becoming a key component of the global financial landscape. Traditional banks have tightened lending practices due to increased regulatory scrutiny and risk aversion following the 2008 Global Financial Crisis. In response, private credit has emerged as an alternative for businesses facing challenges in securing financing from traditional sources.

This blog explores the factors driving private credit's rise and how it compares to public debt and traditional financing.

A Multi-Layered and Growing Market

Several factors have fueled private credit's expansion, including institutional investors' pursuit of yield, increased market sophistication and greater awareness of the segment's unique characteristics.

Private credit includes diverse debt strategies, such as senior debt, subordinated capital and credit opportunities. Senior debt funds offer secured loans for acquisitions and restructurings, benefiting from priority claims on assets. Subordinated capital (mezzanine funds) sits between equity and secured debt, often financing buyouts while generating interest payments. Credit opportunity funds invest in various credit instruments across global markets, including distressed debt and structured finance, providing potential for diversification.

Private Credit vs. Public Debt: Liquidity and Accessibility

Private credit and public debt differ in liquidity and market accessibility. Private credit refers to debt investments that are not publicly traded and typically issued by non-bank lenders. These instruments are often illiquid, with lock-up periods restricting sales. However, this illiquidity may result in higher yields compared to public debt.

Public debt, including corporate bonds and government securities, trades in the public bond market, offering greater liquidity with expanded access for prospective buyers or sellers. This accessibility allows individual and institutional investors to easily participate. However, increased competition often results in lower yields.

For investors, the liquidity tradeoff is crucial. Private credit's illiquidity requires a longer investment horizon, whereas public debt's liquidity provides flexibility but potentially lower yields than can be found in private debt markets.

Transparency and Reporting Standards in Private vs. Public

A key distinction between private credit and public debt is transparency. Public debt is subject to strict regulatory requirements, including standardized disclosures and regular reporting. This enables investors to make informed decisions based on widely available financial data.

Private credit, however, lacks uniform reporting standards. Borrowers are not always required to disclose financial information publicly, and reporting practices vary across issuers. This opacity makes due diligence and fund manager expertise critical in assessing credit risk.

To mitigate transparency challenges, private credit lenders rely on strong borrower relationships, detailed covenants and negotiated reporting requirements. Even so, investors must be comfortable with less readily available information, making trust in their fund managers essential.

Private Credit: Filling the Gaps Left by Banks

The lending landscape has evolved since the 2008 financial crisis. Traditional banks—once primary credit providers—face stricter regulations, limiting their ability to lend, particularly to middle-market businesses and specialized sectors. Higher capital requirements and risk management constraints have reduced their exposure to certain loan types.

Private credit lenders have stepped in, offering capital alternatives to businesses that may not meet traditional lending criteria. These non-bank lenders provide financing solutions with greater flexibility, including tailored repayment schedules, customized covenants, and the ability to underwrite complex transactions.

By serving businesses overlooked by traditional banks, private credit supports economic growth, particularly among small- and medium-sized enterprises (SMEs), which are widely viewed as key contributors to innovation and employment.

Synergies Between Private Credit and Traditional Lending

While private credit and bank lending are often seen as competitors, they also complement each other. Banks may originate loans and syndicate portions to private credit funds, managing risk while continuing to serve clients.

Additionally, banks and private credit firms may co-lend on larger transactions, combining resources and expertise. Such partnerships allow banks to remain engaged in lending while meeting regulatory requirements, while private credit firms gain access to larger, more complex deals.

Learn more in our recent analysis, "The Rapid Rise of Private Credit."

Don't miss our next blog where we explore the opportunities and risks associated with private credit.

This blog was co-authored by Ricky LaBelle and Greg Vadala.

The posts on this blog are opinions, not advice. Please read our Disclaimers.

GARP (growth at a reasonable price) has long been a staple investment strategy, but it was popularized by investing legend Peter Lynch after the Magellan Fund posted a remarkable average annual return of 29.2% from 1977 to 1990.¹ As the name implies, it's a strategy that seeks to strike a balance of tracking stocks with both growth and value characteristics. While the S&P 500^® GARP Index has historically outperformed over the long term, its recent underperformance relative to the S&P 500 in 2024 has led to a situation where it is no longer trading at a "reasonable" price, but rather at a "historically cheap" price relative to The 500™. Interestingly, this blog will reveal that the current valuation disconnect occurs during a period of particularly strong fundamental performance factors for the S&P 500 GARP Index.

Valuation Comparison

Exhibit 1 illustrates the historical trailing 12-month price-to-earnings (P/E) ratio discount of the S&P 500 GARP Index relative to The 500 since June 1995. As of Jan. 31, 2025, the current discount is 51.0%, attributed to The 500's P/E ratio of 28.3 compared to the S&P 500 GARP Index's P/E ratio of 13.9.

As Exhibit 1 shows, the discount has historically tended to mean revert when reaching extended levels, with another notable divergence occurring in June 2000 when the discount peaked at 59% near the Tech Bubble. In the one-, three- and five-year periods following June 2000, the S&P 500 GARP Index outperformed The 500 by 25%, 45% and 78%, respectively.

Growth Comparison

Exhibit 2 shows that the S&P 500 GARP Index's 2024 operating earnings per share (EPS) growth rate is in line with its five-year median of 12.3%. Both figures indicate a significant premium compared to the operating EPS growth rates of The 500 and the S&P 500 Equal Weight Index in 2024. The five-year median is presented instead of the average due to the volatility of operating EPS, particularly during the 2020-2022 COVID-19 period, which can distort the average calculation.

Quality Comparison

The same trend observed in the operating EPS growth comparison is evident in the quality comparison as well. As shown in Exhibit 3, the S&P 500 GARP Index's 2024 return on assets (ROA) of 4.9% is 24% higher than its five-year average of 3.9%. In comparison to The 500 and the S&P 500 Equal Weight Index, this 4.9% ROA reflects a 31% and 100% increase, respectively.

The S&P 500 GARP Index's 2024 return on equity (ROE) of 17.0% is 10% above its five-year average and is closely aligned with The 500's 2024 ROE of 17.3% (see Exhibit 4). Compared to the S&P 500 Equal Weight Index's ROE of 11.0%, the S&P 500 GARP Index's ROE reflects a 54% premium.

Conclusion

Despite its notable valuation discount, the S&P 500 GARP Index's 2024 fundamental performance—assessed through growth and quality metrics—was strong compared to both its benchmarks and its historical performance. The S&P 500 GARP Index demonstrated strong fundamental performance in 2024 while simultaneously trading at one of its widest valuation discounts since the Tech Bubble peak in 2000.

1. "Betting on the Market Pros: Peter Lynch." PBS.

The posts on this blog are opinions, not advice. Please read our Disclaimers.

While the market offers many dividend strategies, few incorporate dividend forecasts to provide a forward-looking assessment. The S&P 500^® High Dividend Growth Index utilizes the industry-leading S&P Global Dividend Forecasting dataset to select constituents from the S&P 500 that are projected to have the highest dividend yield growth. This innovative index applies a unique methodology, tracking companies based on a dividend growth score calculated by subtracting 12-month trailing yield from the 12-month forecasted yield.

Launched on Oct. 23, 2023, the S&P 500 High Dividend Growth Index has made a strong start, outperforming other well-known dividend indices. Furthermore, it has historically shown higher dividend yields and dividend growth rates than The 500™.

In this blog, we will examine the historical characteristics of this index, including its risk/return profile, dividend yield and dividend growth rate. We will also assess its dividend contributions over time and review its sector allocations throughout the years.

Performance since Launch

The S&P 500 High Dividend Growth Index has outperformed other leading dividend strategies both YTD and since its launch, posting returns of 5.75% and 30.51% over those periods, respectively. Exhibit 1 shows that in 2024, the index posted strong performance with a 16.26% return, outperforming most dividend strategies.

Similarly, the S&P 500 High Dividend Growth Index has exhibited solid performance in line with its benchmark, which is not an easy feat given the recent strong performance of mega-cap stocks.

Long-Term, Back-Tested Performance

Since 2010, which includes back-tested performance, the S&P 500 High Dividend Growth Index has posted a robust annualized return of 13.54% and a risk-adjusted return of 0.75. The S&P 500 High Dividend Growth Index's performance has closely aligned with The 500, a notable achievement given the dominance of growth-oriented stocks over the past decade (see Exhibit 2).

Dividend Yield

As shown in Exhibit 3, the dividend yield of the S&P 500 High Dividend Growth Index consistently outpaced the dividend yield of The 500 from 2011 to 2025. On average, the S&P 500 High Dividend Growth Index's dividend yield was 3.09%, outperforming The 500's dividend yield (of 1.82%) by 1.27%.

Dividend Growth Rate

From 2011 to 2025, the S&P 500 High Dividend Growth Index and The 500 grew their dividends at annual rates of 10.6% and 8.8%, respectively. More recently, from 2023 to 2025, the S&P 500 High Dividend Growth Index's dividend growth rate was 8.7%, surpassing The 500's 6.5% rate (see Exhibit 4).

Dividend Contributions

As displayed in Exhibit 5, dividends contributed a greater percentage to the total return of the S&P 500 High Dividend Growth Index than to the total returns of the market-cap and equal-weight benchmarks, as well as style indices like value and growth. Notably, the dividend contributions of the S&P 500 High Dividend Growth Index were 9.8 percentage points higher than those of The 500.

Sector Weights

Exhibit 6 shows how the sector weights of the S&P 500 High Dividend Growth Index have changed over time. On average, the largest sector weights in the index have been Financials, Industrials, Utilities and Information Technology. For a dividend strategy, the weights across the sectors have been overall balanced.

Conclusion

The S&P 500 High Dividend Growth Index combines forward-looking and historical metrics for constituent selection. Its innovative design has historically delivered higher dividend yields and growth rates than its benchmark, all while maintaining strong total returns. Although this index has only been live for just over 12 months, it is noteworthy that it has outperformed similar high dividend yield and dividend growth indices by posting strong returns over this period.

The posts on this blog are opinions, not advice. Please read our Disclaimers.

S&P Dow Jones Indices (S&P DJI) has been calculating indices designed to exclude companies with fossil fuel reserves since December 2011, when the S&P Global 1200 Fossil Fuel Reserves Free Index was launched. This index, along with its sub-indices such as the S&P 500^® Fossil Fuel Reserves Free Index, measure the performance of companies in their respective underlying benchmark that do not own fossil fuel reserves. As such, these indices may be considered by investors who seek benchmarks to reflect a strategy that divests from fossil fuel reserves.

In July 2024, S&P DJI launched the S&P/TSX Composite Fossil Fuel Reserves Free Index, furthering the relationship between S&P DJI and TMX Group. Similar to the already available S&P/TSX 60 Fossil Fuel Reserves Free Index, this new benchmark follows the same methodology rules as others in the series, but applies them to the broader universe of the S&P/TSX Composite. The index is a benchmark for the broad Canadian equity market that excludes companies with fossil fuel reserves.

Regarding index construction, stocks from the starting universe, in this case the constituents of the S&P/TSX Composite, are screened as seen in Exhibit 1 to exclude those companies with exposure to fossil fuel reserves. Within this approach, the index uses 2P or "proven and probable" reserves as a proxy for exposure, which are those with more than a 50% probability of being recovered. The index is rebalanced quarterly to ensure regular data updates, and it is float-market-cap weighted in an effort to closely reflect the composition of the benchmark.¹

As a result of applying these screens, the index composition does change slightly when compared to the benchmark, the S&P/TSX Composite. In terms of GICS^® sectors, we observe an underweighting of Energy owing to the fossil fuel reserves exclusions, with a corresponding overweighting of Financials to compensate. There are also other slight overweights across the board (see Exhibit 2).

In terms of constituent make up, the exclusions lead to a slightly greater concentration of the top 10 constituents of the S&P/TSX Composite Fossil Fuel Reserves Free Index versus the benchmark. As Exhibit 3 shows, the top 10 stocks collectively have a greater weighting within the fossil fuel reserves free index, owing to fewer stocks to select from given the applied exclusions.

The index screens out stocks utilizing S&P Global Trucost environmental data specific to fossil fuel reserves. The screening results in a total of 32 stocks being excluded, representing 9.61% of the benchmark weight as of Jan. 29, 2025.

Historically, the index has exhibited similar risk/return characteristics as the benchmark. As shown in Exhibit 4, when looking at back-tested data, the index maintained similar performance to the benchmark over the 10-year period.

The S&P/TSX Composite Fossil Fuel Reserves Free Index also had a relatively low tracking error over the 10-year period, just 0.69% when compared with the benchmark.

In summary, the S&P/TSX Composite Fossil Fuel Reserves Free Index has historically matched the performance of its benchmark closely, while excluding companies with exposure to fossil fuel reserves. With a number of index-based approaches to climate change-related considerations currently available, this index and its broader series represent one strategy where market participants can gauge the performance of companies, while excluding those with exposure to fossil fuel reserves.

¹ For the full methodology, please see: S&P/TSX Fossil Fuel Reserves Free Indices - Methodology

The posts on this blog are opinions, not advice. Please read our Disclaimers.