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S&P GIVI® Japan and Major Single Factors Q1 2020

U.S. Equities Market Attributes March 2020

U.S. Equities Market Attributes February 2020

U.S. Equities Market Attributes January 2020

S&P Target Date Scorecard Year-End 2019

S&P GIVI® Japan and Major Single Factors Q1 2020

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Tianyin Cheng

Senior Director, Strategy Indices

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Izzy Wang

Analyst, Strategy Indices

The S&P GIVI (Global Intrinsic Value Index) Japan outperformed its benchmark index, the S&P Japan BMI, by 40 bps in Q1 2020. Since its launch in March 2012, the S&P GIVI Japan has outperformed its benchmark index by 13 bps per year, with a tracking error of 2.44%.

2020 has gotten off to a bad start.  The Japanese equity market, as measured by the S&P Japan BMI, declined by 17.96% in Q1 2020, which was the worst-performing quarter since the GFC.  Amid the concern over the global economy’s outlook when China placed itself on lockdown due to COVID-19 in January, the Japanese market saw a mild decline.  After oil prices crashed and the virus threw various countries into chaos in March, the worldwide economic slowdown became real, and Japan had to join the global fight against COVID-19.  On March 23, 2020, the S&P/JPX JGB VIX®, which measures the 30-day forward volatility of 10-year JGB futures and represents the macroeconomic stability of Japan, rose to an all-time high of 6.81 and closed at 4.77 for Q1.  Stressed investors were resorting to extreme behavior amid the uncertain economic outlook and pressure on market liquidity. 

In the COVID-19 crisis, sectors appeared to be the main driver of performance, with a large gap between winners and losers—the difference between the best- and worst-performing sectors was 24.74%.  On one hand, the sharp decline in consumption demand and shortage of supply heavily hit several cyclical sectors.  Energy was the worst performer under the pressure of low demand and the collapse of Saudi-Russia negotiations.  Real Estate was severely affected, especially in the hotels and malls segments.  On the other hand, traditional defensive sectors, such as Utilities and Consumer Staples, were the best performers.  Health Care outperformed, as demand for healthcare products surged this quarter and hopes were on biotech companies producing vaccines/testing tools.  Finally, the increase in social distancing boosted the use of internet-based products, which favored Communication Services. 

The outperformance of the S&P GIVI Japan was mainly due to the selection effect, especially in Information Technology and Communication Services.

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U.S. Equities Market Attributes March 2020

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Howard Silverblatt

Senior Index Analyst, Product Management

KEY HIGHLIGHTS

MARKET SNAPSHOT

There’s nothing new I can add; be safe and use common sense about going out.  If there is something you can do for others, without putting yourself (or your family) at risk, do it.  From an investment side, know what you can know—your portfolio, your liquidity and access, your current and expected needs, and your tolerance level for losses.

The only real March issue was COVID-19; the specifics were how long it would last and how deep would it go.  The immediate impact was seen in the closing of much of the global economy.  After a three-day rally, the Dow Jones Industrial Average posted over a 20% gain, which was classified as a bull run in a bear market.  To be out of the bear market, the index needs to close above its previous high.  Both the one- and three-month U.S. Treasury rates went negative for a short period of time, an event that last occurred in 2015.  The bar talk is gone, since the bars are closed, but the web chatter is only God knows what to do now.  And the market surely was not God, because it did not know, with the telling tale being volatility; the average intraday high/low S&P 500 price rate for 2019 was 0.85%, as 2020 was 2.57% YTD (2008 was 2.81%), with March at 5.34% (October 2008 was 6.92%).


U.S. Equities Market Attributes February 2020

KEY HIGHLIGHTS

MARKET SNAPSHOT

As February came to a close, many felt like the sky fell and the world was coming to an end.  The last week of the month brought back-to-back 3% declines and a 4% decline, hitting those investors and traders who had only known an 11-year bull market, who complained that no one had told them that this could happen—yet, there was no panic on the Street.  Trading (while one-sided) was managed, and since no one uses phones anymore there were no margin calls and no reason for anyone to overreact.  For us old guys, it was déjà vu (and a chance to retell our war stories at the bar), as the Street’s initial knee-jerk reaction (which many say was late in coming) changed to accepting a direct impact on the U.S. from the coronavirus, a greater economic impact from supplies, and more damage from the potential impact on consumer spending—which has supported sales—as corporate expenditures have disappointed (and, at this point, appear to have the greatest potential for negative short-term economic impact).

The damage, however, was real (for old and young), as the S&P 500 declined 11.49% for the week, off 12.76% from its Feb. 19, 2020, closing high, down 8.41% for the month and down 8.56% YTD, to enter an official correction point (in the same month in which it posted six new closing highs), dropping USD

3.58 trillion from the highs (as global markets lost USD 6.99 trillion) and ending the month down USD 2.24 trillion (with the global market down USD 4.87 trillion for the month).  Interest rates dropped as a flight to safety saw 10-year and 30-year U.S. Treasury Bonds trade at all-time lows (closing at 1.15% and 1.68%, respectively), with the Street pricing in interest rate cuts from the U.S. Federal Reserve for March and April (with some talk of a 0.50% cut in April).  Oil broke under USD 45 (closing at USD 45.26), after being over USD 63 in January of this year.  Companies started to warn on Q1 2020 (Q1 estimates have declined 5.0%, and more declines are expected, as approximately 100 companies have warned), as the first case of a non-travel related instance of the coronavirus was reported in California.  The U.S. expanded its response; Trump put Vice President Pence in charge.  Another bar discussion remained as to whether the coronavirus was the event or an event.  How much of the market reaction was due to the virus event, or was the market looking for a reason to take profits, after setting new highs without any major pullback (the S&P 500 posted a new closing high on Feb. 19, 2020).  The current answer appeared to remain (as it was for last month’s pullback) that it was time for a pullback, given “we” were all looking for one, with the new take (now by almost all that were talking) that the virus posed the greatest danger to profits and markets—right here in the U.S.A.  And since the spread and impact are not under the control of the Street, the only thing investors could do is prepare and react.  The bottom line for now is that the Street has accepted the coming impact on stocks and adjusted its pricing, with the key question being what will actually happen, as the market reacts to perception first, and facts second.


U.S. Equities Market Attributes January 2020

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Howard Silverblatt

Senior Index Analyst, Product Management

KEY HIGHLIGHTS

  • The S&P 500® was down 0.16% in January, bringing its one-year return to 19.28%.
  • The Dow Jones Industrial Average® lost 0.99% for the month and was up 13.03% for the one-year period.
  • The S&P MidCap 400® decreased 2.70% for the month and returned 9.36% over the one-year period.
  • The S&P SmallCap 600® returned -4.05% in January and 4.89% for the one-year period.

MARKET SNAPSHOT

The Wall Street adage “as January goes, so goes the year,” which has proven to be correct 71.4% of the time, ended with the S&P 500 posting a 0.16% decline for January.  The index still posted six new closing highs throughout the month (five for the Dow), as the Street still looks “to find a reason to believe,” one more time.  For January, you get to pick the fall guy, as the index return ex-Apple would have been worse, down 0.43%.

The month, which brought gains and new highs (the index was up 3.06% for the month on Jan. 17, 2020), saw positive earnings and the signing of the phase one U.S.-China trade agreement.  The month opened with worries of World War 3 and closed with the rise and fall of tensions with Iran.  Oil crossed above USD 64, but fell to close the month at USD 51, as the market was able to trade through the issues, while maintaining optimism and gains—that is, until the coronavirus took over as the top concern, dominating the end of the month.  The debate on the Street was how much of the market reaction was due to the virus event, or if it was the market looking for a reason to take profits, after setting new highs without any major pullback (at that point, not even one day had posted a 1% decline since October 2019).  The answer may be that it was time for a pull back, given “we” were all looking for one.  However, the reality is that China took enormous steps and implemented a lockdown that affected 56 million people, vastly shifting resources and spending, and the effect of those actions—in and of themselves—will have a global impact (no man is an island).  Regardless of the reason January brought the first trading day to decline at least 1% since Oct. 8, 2019 (-1.57%), which appeared more as a controlled sell-off than a free-fall; or the next day’s rebound (1.01%, helped by buying and bargain hunters), which was the first 1% gain since Oct. 11, 2019 (1.09%); or the last trading day’s 1.77% decline, when buyers appeared to keep their hands in their pocket (away from the button, and hopefully waiting for better prices), the virus event remains a major global issue.  Any prolonged Chinese impact was seen as affecting global supply chains (and costs), which could easily make it a major U.S. market issue and appears to justify why it is now at the top of the list of market concerns (above trade, politics, and interest rates).


S&P Target Date Scorecard Year-End 2019

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Adrian Carranza Araujo

Senior Specialist, Global Equity Indices

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Hamish Preston

Associate Director, U.S. Equity Indices

SUMMARY

  • The S&P Target Date® Scorecard provides performance comparisons, equal- and asset-weighted category averages, and analytics covering the target date fund (TDF) universe.
  • The S&P Target Date Index Series offers representative benchmarks for TDFs. The series distinguishes itself from peer group benchmarks because it is investable, comprises consensusderived asset allocation weights, and its composition is known in advance of evaluation periods.
  • The S&P Target Date Through benchmarks represent the “Through” glide path category, while the S&P Target Date To benchmarks represent the “To” category.
  • Through TDFs outperformed To TDFs over the three-year horizon. Each S&P Target Date Through Index posted higher returns than its corresponding S&P Target Date To Index by an average of 1.06% across the different vintages.
  • Outperformance was particularly pronounced in the nearer vintages. The S&P Target Date Through 2015 Index and the S&P Target Date Through 2020 Index beat their To counterparts by 1.55% and 1.53%, respectively.
  • Higher equity allocations helped to explain the higher returns for Through TDFs. On average across the different vintages, Through TDFs had a 10.9% higher equity allocation than To TDFs. This difference was especially pronounced among the 2015 and 2020 vintages. Unsurprisingly, perhaps, To TDFs were less volatile than Through TDFs. Each S&P Target Date To Index offered less volatile returns over the three-year period than the corresponding Through index vintage. Overall, To TDFs offered higher risk-adjusted returns over the three-year horizon, especially at nearer vintages.
  • Larger TDFs continued to outperform smaller TDFs. The assetweighted returns exceeded the equal-weighted returns over one-, three-, and five-year horizons in all but two instances.  The one-year figures for the 2010 and 2060+ TDFs offered the exceptions.


A UNIQUE SCORECARD FOR THE TARGET DATE UNIVERSE

The S&P Target Date Scorecard presents the performance of TDFs as compared to appropriate benchmark indices. We consider all target date asset allocation policies to be active decisions, so we include funds that use passive underlying investments as well as active underlying investments. The scorecard covers target dates from retirement income to 2060 and beyond, and it has the following unique features.

  • A Representative Target Date Benchmark: The S&P Target Date Index is the only consensusdriven target date benchmark offered by an independent index provider. Its asset class exposure and glide path are functions of market observations acquired from an annual survey of target date managers. The index currently includes target dates from retirement income through 2060+. The S&P Target Date To Retirement Income and the S&P Target Date Through Retirement Income series were launched in January 2015, and performance is incorporated as accumulated history becomes available.
  • Apples-to-Apples Comparison: Target date fund returns are sometimes compared to popular asset class benchmarks such as the S&P 500® or Bloomberg Barclays U.S. Aggregate Bond Index. The S&P Target Date Scorecard avoids this pitfall by measuring a fund's returns against the returns of the benchmark that is most appropriate for each target date category.
  • Asset Allocation Risk Revealed: Sometimes custom, multi-asset class benchmarks are used for comparison purposes. However, these benchmarks do not measure asset allocation risk, as they are typically set with asset class exposure selected by fund managers. They also may lack transparency with respect to the method behind their calculation and may not be adjusted for changes in asset allocation policy over time. The report avoids these problems by referencing our consensus-driven target date benchmark that provides a representative proxy of asset allocation risk for each target date vintage.
  • Asset-Weighted Returns: Average returns for a fund group are often calculated using only equal weighting, which results in the returns of a USD 10 billion fund affecting the average in the same manner as the returns of a USD 10 million fund. An accurate representation of how market participants fared in a particular period can be better ascertained by calculating weighted-average returns, in which each fund’s return is weighted by net assets. The S&P Target Date Scorecard shows both equal- and asset-weighted averages. Additionally, we now use all share classes to calculate average TDF returns and performance quartiles.
  • Data Cleaning: Appropriate peer groups are built from underlying databases so meaningful benchmark comparisons may be performed. TDFs with vintages of 2060 or beyond are compared with the S&P Target Date 2060+ Index. TDFs with vintages that have already passed, such as 2005, are compared with the S&P Target Date Retirement Income Index. Average TDF returns, both equal-weighted and asset-weighted, are calculated using all share classes within each fund family in order to represent the aggregate experience of TDF shareholders. The S&P Target Date Scorecard offers the only comprehensive, periodic, and publicly available source of such data.

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