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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 Latin America Equity Indices Quantitative Analysis Q4 2019

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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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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