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S&P Kensho New Economies Commentary: Q1 2021

One Small Step for Small (and Mid) Caps, One Large Step for Sustainability: A Recap of the 2021 S&P MidCap 400 ESG Index and S&P SmallCap 600 ESG Index Rebalance Results

U.S. Equities Market Attributes April 2021

S&P Latin America Equity Indices Quantitative Analysis Q1 2021

U.S. Equities Market Attributes March 2021

S&P Kensho New Economies Commentary: Q1 2021

Top 3 From Across the New Economies

Virtual Reality (+71.33%)
The subsector benefitted from growth in many areas, including augmented reality smart glasses, computer vision, and gaming. Two companies focused on AR-headsets, Vuzix and Microvision, produced very strong performances over the quarter, followed by 3D Systems. Vuzix reported its best quarter in its corporate history and Microvision announced it has made further improvements in its LIDAR technology, which has applications in autonomous vehicles. 3D Systems, which creates VR simulations for medical procedures in addition to 3D printers, announced strong financial results for 2020, and raised guidance for 2021.

Distributed Ledger (+59.57%)
All things crypto surged in Q1; along with the price of Bitcoin, came a focus on NFTs and other uses for blockchain technology, such as for settlement. The biggest individual contributor was Riot Blockchain, returning 213% for the quarter, boosted by continued growth in the number of coins it has successfully mined, coupled with continued rise in the price of Bitcoin. Worth noting, this subsector had a 0.43 correlation to the price of Bitcoin in 2020. Magnachip Semiconductor also contributed, benefitting from a take-private transaction announced on March 26.

Nanotechnology (+35.08%)
Nanotechnology saw strong performance across the subsector, as it was positively impacted by a strong Q1 from the semiconductor and pharmaceutical industry groups. Semiconductor companies saw revenue gains in Q1, possibly driven by the global chip shortage. Vuzix and Luminex Corp were both big contributors, with the latter returning 38.4% for the quarter, as the company reported record revenue for 2020.


Bottom 3 From Across the New Economies

Cybersecurity (+0.58%)
Cybersecurity struggled in Q1, with the malaise in software companies weighing on sector returns, owing to their high valuations and rising interest rates. The biggest detractors were Mimecast and Tenable. The former was a victim of the SolarWinds hack and had some of its source code was stolen. Tenable Holdings issued muted guidance for 2021, citing continued uncertainty from the effects of the pandemic.

Genetic Engineering (-0.95%)
Genetic Engineering was beset by profit-taking and a rotation out of growth stocks in the second half of Q1. The development of COVID vaccines had acted as a tailwind for this group in 2020, and investors appeared to be locking in the resultant gains. Stock-level performance in the subsector tended to be driven by idiosyncratic factors. Precigen and Amicus Therapeutics underperformed as they revealed underwhelming earnings numbers for 2020. Intellia Therapeutics, on the other hand, had a strong Q1, as it presented positive pre-clinical data for its in-vivo treatment of sickle-cell disease.

Future Payments (-2.14%)
Future Payments was impacted by uneven performance from banks and payment processors, as uncertainty weighed on loan balances and transaction volumes. Visa reported a 6% drop in Q1 revenue, driven primarily by falling cross-border transaction volume. Q2 Holdings also reported disappointing earnings, as revenue stagnated and costs increased.

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One Small Step for Small (and Mid) Caps, One Large Step for Sustainability: A Recap of the 2021 S&P MidCap 400 ESG Index and S&P SmallCap 600 ESG Index Rebalance Results

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Margaret Dorn

Senior Director, ESG Client Engagement North America

In the world of ESG investing, there has long existed a David versus Goliath scenario in which small-and mid-cap companies have often been considered the sustainable underdog.  With the strength, size, and resources of larger-cap companies, it may seem a formidable challenge for smaller companies to compete within the sustainable ranks.  However, the rules around corporate sustainability are evolving, and nimbleness, flexibility, and adaptability are all attributes that will ultimately help promote positive change in mid- and small-cap companies.  The 2021 rebalance—the first for the S&P MidCap 400® ESG Index and the S&P SmallCap 600® ESG Index since their launch—has provided an opportunity for these small(er), yet mighty, companies to showcase their contributions to the growing sustainability universe.

ESG Score Improvement: A Leading Indicator

While there were many positive results coming out of the April 30, 2021, rebalance, one of the most encouraging signals was that small and mid caps are well on their way to improving their sustainability standing. This was evidenced by the fact that the S&P SmallCap 600 ESG Index and S&P MidCap 400 ESG Index achieved a significant boost in S&P DJI ESG Score improvement both in absolute terms—at the index level—and in their realized ESG score potential. While the numbers may seem modest in comparison to their large-cap counterpart, the substantial year-over-year increase in ESG performance for both the small- and mid-cap indices dwarfed the improvements exhibited by the S&P 500® ESG Index (see Exhibit 1).  This could be considered an indicator that smaller companies are moving quickly to close the sustainability gap between themselves and their larger-cap competitors.

Contributors:

Maggie Dorn, Senior Director, ESG Client Engagement, North America, margaret.dorn@spglobal.com

S&P Dow Jones Indices’ Market Attributes® series provides market commentary highlighting developments across various asset classes.

A Recap of the 2021 S&P MidCap 400 ESG Index and S&P SmallCap 600 ESG Index Rebalance - Exhibit 1

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U.S. Equities Market Attributes April 2021

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Howard Silverblatt

Senior Index Analyst, Product Management

KEY HIGHLIGHTS

U.S. Equities Market Attributes April 2021

MARKET SNAPSHOT

The good times continued, and will until they don't. The new highs appeared faster than leaves falling in an early winter's frost, with profits blooming higher than dandelions after a spring rain. The gardening continued to be vigilantly overseen by the Fed & Treasury (the U.S. Federal Reserve, which still is not talking about talking about tapering, and the U.S. Treasury, which if you didn't like the last spending program, look at the two current proposals, or just wait a bit), as economic growth was measured against charts of actual stimulus checks and vaccine rates. Adding fertilizer to the garden were well-off consumers, who started what is expected to be a record-breaking spending spree, as they come out (safe or not) to resume their pre-pandemic lives. The impact of the wallet opening was seen in the first quarter earnings report, not by the 84% beat rate (249 of 297; 67% historically), but the size of the beat, as the first quarter was on track to set a new record (up 135% over the depressed Q1 2020 period) with the new high that wasn't expected until the second quarter. Those earnings records, with new ones expected for Q3 and Q4 2021 (Q2 is expected to be a tick down, and second only to Q1), fed the already optimistic market, as the S&P 500 set another 10 new closing highs for the month (of the 21 trading days; 25 new highs YTD). The bottom line was that the index returned 11.32% YTD (37.94% annualized), with some investors taking a little of f the top (and some reallocating to more liquid stocks), but few getting out of the market (less selling, and trading was down). With even more stimulus being discussed (via the American Infrastructure and Family Plans) and consumers charging on, upward pressure will likely continue. As for what could get in the way of the upward pressure, since even a pause in the Johnson & Johnson vaccine didn't impact the optimism, the current candidates are: COVID-21 (or the equivalent), a strong whiff of inflation (helped by overspending, cost push, and supply and labor shortages), higher debt cost (think national debt, not corporate), a resistance to higher price pass-throughs (lowering margins, which at 12.81% for Q1 could set an Operating record), a non-U.S. downturn (e.g., Europe and Asia, even as China is booming), the start of profit-taking with too many money managers jumping on the bandwagon to protect their gains, and a reliable old favorite— Washington.

The S&P 500 closed at 4,181.17, up 5.24% (5.34% with dividends) from March's 3,972.89 close. The Dow® broke through 34,000 for the first time, as it closed at 33,874.85, up 2.71% (2.78% with dividends).

The U.S. Senate Parliamentarian ruled that President Biden's USD 2.25 billion stimulus fiscal package is part of the of the previously passed budget resolution, which means a new budget does not need to be created, saving time and going directly to the reconciliation (political) process. In the background is an attempt by Democrats to change the filibuster rule, which would reduce the ability of Republicans to block legislation.

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S&P Latin America Equity Indices Quantitative Analysis Q1 2021

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Michael Orzano

Senior Director, Global Equity Indices

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Silvia Kitchener

Director, Global Equity Indices, Latin America

S&P Latin America Equity Indices Commentary: Q1 2021

The first quarter was a tough one for equity markets in the region, as a stronger U.S. dollar and the ongoing impact of the COVID-19 pandemic weighed on performance. Despite a 3.1% gain in March, the S&P Latin America BMI lost 5.8% in USD in Q1 2021, while the S&P 500® gained 6.2%. At the country level, the story was mixed. Mexico and Chile finished the quarter in positive territory, while Brazil, Argentina, and Colombia all declined. Peru was nearly flat.


The currency exchange rate plays an important role in the performance of regional indices. Given the strength of the U.S. dollar, returns measured in local currency were much better. In Q1, the S&P Brazil BMI lost 10.2% in USD but only 3.1% in BRL. Similarly, the S&P Colombia BMI lost 15.7% in USD but only 9.5% in COP. Peru had mixed results, with the S&P/BVL Peru General Index generating a nearly flat return in PEN (-0.7%), but a positive one in USD (2.6%). Chile’s and Mexico’s equity markets performed strongly in Q1, posting slightly higher gains in their respective local currencies than in USD terms. Argentina was the only market in the region for which returns in ARS and USD were negative. Therefore, the cumulative returns in local currency for Q1 of the S&P Latin America BMI (which excludes Argentina) was nearly flat, at -0.09%.


Let’s review some of the more interesting trends (in local currencies) that happened in each market. In Argentina, despite having a tough Q1, the flagship S&P MERVAL Index had strong gains for the one-, three-, and five-year periods with annualized returns of 96.8%, 15.5%, and 29.9%, respectively. It is worth mentioning that market volatility was the highest in this region.


Q1 2021 resulted in negative returns for most Brazilian equity indices, except for the S&P/B3 SmallCap Select Index (3.0%) and the S&P/B3 Low Volatility Index (1.0%). What was exceptional was the longer-term performance of the S&P/B3 High Beta Index, which gained 105.9%, 25.9%, and 39.6% for the one-, three-, and five-year periods, respectively. The S&P/B3 Ingenius Index, based on international technology-driven companies listed on NYSE or NASDAQ and on B3 as BDRs, continued to do well despite currency differences (11.0% BRL).



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U.S. Equities Market Attributes March 2021

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Howard Silverblatt

Senior Index Analyst, Product Management

KEY HIGHLIGHTS

U.S. Equities Market Attributes February 2021

MARKET SNAPSHOT

Finally, it was a month of trading without COVID dominating the market, although it did have impact. The market traded on fundamentals, as interpreted with a post-COVID view, which permitted five new closing highs and a flirt with 4K at the end of the month, as it set a new intraday high on the last trading day. Meanwhile, rumors, optimism, greed, and fear of losing out came back to the market—normality (at least as close to it as we can get). Housing news continued to be positive, but results were well short of estimates, as costs continued up and supply remained low, making it a seller’s market. Weekly Unemployment Claims returned closer to the pre-COVID level, breaking under 700,000 (in March 2020, it went from 282,000 to 3.3 million, reaching the weekly high of 6.9 million that month). The Fed maintained that it would continue to be accommodative—and no one doubted it, as it gave tentative approval to big banks for dividends and buyback increases post Q2 2021. Optimism ruled, and all you had to do to profit from it was to trade and not be the last one holding the issue (as streamed on Viacom and Discovery, and played on GameStop). Ah, market normality, heck of a way to make a living, but ain’t it great?

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