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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

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 Target Date Scorecard Year-End 2020

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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S&P Target Date Scorecard Year-End 2020

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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 COVID-19 caused substantial recalibrations in Q1 2020, better-than-feared corporate earnings, bouts of optimism over the economic outlook, and vaccine rollout announcements contributed to an equity market recovery over the rest of 2020.
  • Large caps led the way in 2020 as the S&P 500® (up 18%) outperformed the S&P MidCap 400® (up 14%) and the S&P SmallCap 600® (up 11%). Strong returns from some of the largest companies in the market, coupled with smaller, more domestically focused companies' greater vulnerability to the Q1 2020 "COVID correction," were key drivers.
  • Far-dated S&P Target Date Indices outperformed their nearer-dated counterparts last year. Higher equity allocations meant the former participated in a greater proportion of 2020's equity market recovery.
Exhibit 1

  • However, on a risk-adjusted basis, the nearer-dated S&P Target Date Indices outperformed over all time horizons. 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
  • Larger TDFs continued to outperform their smaller counterparts on average. Asset-weighted returns were higher than equal-weighted returns in all but two categories. The 2010 vintage over one- and three-year horizons offered the exceptions.
  • 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 lower equity allocations helped to explain TO style indices' 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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