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S&P Target Date Scorecard Year-End 2019

S&P Target Date Scorecard Mid-Year 2020

S&P Latin America Equity Indices Quantitative Analysis Q4 2019

S&P GIVI® Japan and Major Single Factors Q4 2019

S&P Latin America Equity Indices Quantitative Analysis Q3 2019

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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S&P Target Date Scorecard Mid-Year 2020

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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 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.
  • The first half of 2020 saw sizeable swings as the market reacted to COVID-19. After we said goodbye to the longest ever bull market in March, U.S. equities hosted a tremendous rally in Q2: the S&P 500® (up 21%) posted its best quarterly total return since 1998.
  • Higher equity allocations made far-dated S&P Target Date Indices more sensitive to equity market movements. Indeed, Exhibit 1 shows that far-dated indices experienced greater drawdowns during Q1 2020 but also posted stronger returns in Q2.
  • Overall, nearer-dated S&P Target Date Indices outperformed their longer-dated counterparts in the first half of 2020. However, higher allocations to U.S. large caps helped far-dated indices to outperform over longer horizons: the S&P 500 posted the highest returns of any S&P Target Date Index component over three- and five-year horizons.

  • Given that S&P Target Date Indices are designed to embody market consensus asset allocations, it is unsurprising that, on average, nearer-dated TDFs outperformed their longer-dated counterparts during the first half of 2020. The opposite was true over longer horizons.
  • In a continuation of a recent trend, larger TDFs outperformed their smaller counterparts; asset-weighted returns were higher than equal-weighted for all but the 2010 category over the six-month, one-year and three-year horizons. Asset-weighted returns were higher in all categories over the five-year horizon.
  • S&P Dow Jones Indices also produces S&P Target Date Style Indices. The "T" style indices aim to mitigate the impact of market drawdowns around the expected retirement date, while the "THROUGH" style indices aim to negate longevity risk—the risk of outliving one’s assets in retirement. Hence, THROUGH style indices have higher equity allocations than TO indices.
  • The relative returns of TO versus THROUGH indices in the first half of 2020 and over the one-year horizon typically decreased as the time to the assumed retirement date increased. This reflects the fact that near-dated TO indices, with much lower equity allocations than their THROUGH counterparts, were more insulated against market drawdowns earlier this year. In contrast, smaller differences in equity allocations between far-dated TO and THROUGH indices meant both styles were similarly impacted during Q1 2020. Far-dated THROUGH indices then benefitted more from the substantial equity market recovery in Q2 2020.
  • THROUGH style indices posted higher returns than their TO counterparts over three- and five-year horizons, while TO style indices posted lower volatility. Such volatility reduction helped near-dated TO style indices to post higher risk-adjusted returns than their THROUGH counterparts. The opposite was true for far-dated style indices: higher returns helped far-dated THROUGH style indices to post higher risk-adjusted returns than their TO counterparts.

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S&P Latin America Equity Indices Quantitative Analysis Q4 2019

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Michael Orzano

Senior Director, Global Equity Indices

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Silvia Kitchener

Director, Global Equity Indices, Latin America

From a political and economic standpoint, 2019 was a challenging and interesting year for the Latin American region, but the region still finished strong. The S&P Latin America 40, Latin America’s blue-chip index, ended Q4 with a return of 9.0%, and it was up 13.9% for the year. Small-cap stocks in the region fared well, helping the broad S&P Latin America BMI return 11.1% for the quarter and nearly 22% for the year. Despite the strong performance, Latin American indices still lagged some of the global equity indices. The S&P 500® returned 9.1% for the quarter and an outstanding 31.5% for the year. The S&P Global 1200 yielded 8.9% for the quarter and 28% for the year. The S&P Emerging BMI also had a great year (up 19.9%), but still underperformed Latin America (as measured by the S&P Latin America BMI).

In 2019, all 11 GICS® sectors for Latin America posted positive returns, as measured by the S&P Latin America BMI Sector Indices. Some sectors yielded considerable returns; Health Care gained 22.0% for the quarter and was up 72.2% for the year. Information Technology and Real Estate were next, yielding 43.5% and 42.3% for the year, respectively. Materials had a strong quarter, returning 16%, which helped to bring the sector into positive territory for the year, ending with a mere 4.4%—the lowest annual return of the sectors.

Besides sectors, it is clear that Brazil’s positive performance was a big contributor to the overall performance of the region. Brazil not only had a stellar quarter with the local benchmarks, as the IBrX 100 and the S&P Brazil BMI both yielded around 11%, but the country also had a banner year, providing returns in the mid-30% range in local currency terms.

With the growing trend of factor indices in Brazil, we see that most did well for the year, and in most cases returns were above 40% in local currency and USD. However, the risk data was also high, particularly for the USD-denominated indices. Local investors took on less risk when removing the currency exchange rate from the performance calculation.

Chile was the worst performer amid the political unrest the country underwent during the last quarter. No headline index was unscathed, and they all ended the quarter and the year in the red. Hardest hit were mid-cap stocks, as measured by the S&P/CLX IGPA MidCap, which lost 14% for the quarter. The banking sector was hit particularly hard, with losses of 21%, as measured by the S&P/CLX Banks Index. The S&P/CLX Utilities & Telecom Index surprisingly gained 7.5% for the quarter and nearly 16% for the year.

Mexico, the second-largest market in the region after Brazil, had a good year. Mexico’s flagship index, the S&P/BMV IPC, returned 1.2% for the quarter and 4.6% for the year. The S&P/BMV FIBRAS Index, which seeks to track the performance of the local real estate income trust stocks, and the recently launched S&P/BMV Ingenius Index, which is designed to measure 12 of the most innovative companies in the world trading in Mexico, each had returned over 40% for the year. For the quarter, the S&P/BMV China SX20 Index had the best return, up 10.8%.

Among factor indices in local currency, the S&P/BMV IPC CompMx Short-Term Momentum Index and the S&P/BMV IPC CompMx Quality Index (each with 15 stocks representing the top companies within each factor) had returns of 16.5% and 18.4% for the year, both with relatively low risk.

Argentina was the most volatile market in the region in 2019, mostly triggered by the extreme depreciation of the Argentinian peso, the continuous increases in inflation rates, and the uncertainty following the recent change in government. For the year, the S&P MERVAL Index returned 37.6% in ARS. The Argentinian market generated the highest volatility data of the region, as the three- and five-year risk rates based on standard deviation for the S&P/BYMA Argentina General Index were 42% and 38%, respectively.

Finally, markets in Colombia and Peru had good years. The flagship indices, the S&P Colombia Select Index and the S&P/BVL Peru General Index returned 30.0% and 6.1% in local currency terms, respectively.

Overall, we found that the markets were steady; the ups and downs were not as drastic as the previous year. The last month was particularly intense for Latin America, as the region experienced a strong recovery. With the new year, new challenges and new opportunities arise. It will be interesting to see the development of these markets in the coming months.

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S&P GIVI® Japan and Major Single Factors Q4 2019

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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 underperformed its benchmark index, the S&PJapan BMI, by 1.69% in Q4 2019 and 6.64% for the entire year.[1]  Since its launch in March 2012, the S&P GIVI Japan has outperformed its benchmark index by 0.07% per year, with a tracking error of 2.48%.

In contrast to the sharp decline in Q4 2018, Q4 2019 delivered a rally across global equities markets, concluding a bullish 2019.  While underperforming other major markets, the Japanese equities market posted a total return of 8.32% in Q4 2019 and 18.38% for the entire year, as measured by the S&P Japan BMI.

Despite the remaining uncertainties surrounding the U.S.-China relationship, the “phase one” trade deal seemed to provide significant relief for the Japanese equities market and helped to boost performance.  Business sentiment was largely dragged down by manufacturing, as suggested by the December 2019 Tankan Survey, indicating a divergence between conditions in manufacturing and services.  The rise in consumption tax in October 2019 hit the private consumption sector as expected. 

The underperformance of the S&P GIVI Japan was mainly driven by the low beta leg due to its index construction.  For low volatility indices, 2019 was a tough year, with low volatility ending as the worst performer out of five factors in the Japanese market.  Various low volatility indices in the Japanese market underperformed the S&P Japan BMI.[1]

In Q4 2019, Industrials, Consumer Discretionary, and Information Technology were the best-performing sectors, while Energy, Utilities, and Real Estate were the laggards. 

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S&P Latin America Equity Indices Quantitative Analysis Q3 2019

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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: Q3 2019

The third quarter was a difficult one for the Latin American region. Meanwhile, it was a mixed bag for global markets—the U.S. ended on a slightly positive note, Europe on a negative one, and Japan also on a positive one, with global markets remaining nearly flat. The S&P 500® ended the quarter up 1.7%, the S&P Europe 350® posted almost the exact opposite with -1.6%, while Japan’s S&P/TOPIX 150 was up nearly 4%. Latin America’s blue-chip index, the S&P Latin America 40, was down 6.3%. Many internal factors contributed to the region’s underperformance, including reductions in exports, contractions in the industrial and service sectors, soft labor markets, political uncertainty, a slump in commodities prices, and low consumer sentiment. External factors also weighed heavily on the region, primarily the uncertainty surrounding trade negotiations between the U.S. and China.

While all Latin American markets ended in the red for Q3 2019, when comparing with USD-based returns, we noticed that, with the exception of Argentina and Peru, all markets in the region outperformed or were flat in local currency terms. This is an example of how currency depreciation can have an impact on performance. The biggest differences were seen in Brazil and Colombia, with the S&P Brazil BMI posting a return of -3.9% in USD but 4.2% in BRL, and, the S&P Colombia Select Index returning -5.7% in USD but a decent 2.3% in COP. Mexico’s headline benchmark, the S&P/BMV IPC, generated a -2.6% total return in USD but was nearly flat in MXN (0.2%).

Overall, most currencies in the region saw significant depreciation during Q3 2019. Argentina led the pack in the depreciation rate for the quarter, with a fluctuation of nearly 60% between the highest and lowest rates. Brazil followed with a fluctuation of 16%, and Colombia followed with a change of nearly 11%.

Interestingly, sectors seemed to offer a clearer picture of the region. It was certainly a tough quarter for most economic sectors, although we still saw defensive sectors like Health Care and Consumer Staples were still able to post positive returns. Real Estate, Consumer Discretionary, and Information Technology also ended the quarter in positive territory. The Materials sector, which includes mining companies, was the worst-performing sector, followed by Financials.

Brazil was the best performer in the region for the quarter. Not surprisingly, most of the best-performing stocks were Brazilian, with BRF S.A., a Consumer Staples company, finishing at the top of the list among the constituents of the S&P Latin America 40, which seeks to track the performance of the leading 40 companies in the region. In terms of indices, the S&P/B3 Momentum Index, which focuses on the top companies in the Brazilian market that show persistence in their relative performance, as measured by their risk-adjusted price momentum score, had the best return for the quarter at 14.5%.

In Mexico, the momentum index was also a top performer among factor strategies. The S&P/BMV IPC CompMx Short-Term Momentum Index returned nearly 4%, significantly higher than the benchmark S&P/BMV IPC’s return (0.2%). However, in Mexico, FIBRAS ruled, and the S&P/BMV FIBRAS Index had an outstanding quarter (10.5%), as much of its returns are attributable to the high yields FIBRAS generate. As of Sept. 30, 2019, the indicated dividend yield for the S&P/BMV FIBRAS Index was 8.1%.

Chile had a relatively flat quarter, with the S&P IPSA returning -0.2%. The worst performers were small-cap stocks, as measured by the S&P/CLX IGPA SmallCap (-7.1%). In terms of sectors, the S&P/CLX IGPA Consumer Staples did the worst (-8.4%). Meanwhile, the S&P/CLX IGPA Real Estate and the S&P/CLX IGPA Industrials had strong returns of 11.1% and 7.3%, respectively.

Peru and Colombia had difficult quarters, with Peru being the worst performer of the two. However, in both markets the best-performing stocks were from the Electric Utilities industry, proving the Utilities sector’s defensive potential during challenging market environments.

As we enter the last quarter of the year, many are already looking forward to 2020. Most economists’ consensus is that Latin America will continue to struggle with market volatility, stagnant economic growth, and political uncertainty. As an optimist, I think there are always investment opportunities in the short- and long-term horizon, despite the tough times. In fact, the diversity of our leading country and regional indices shows exactly that.

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