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Bringing Transparency to an Emerging Asset Class: S&P Cryptocurrency Indices

RIATalks India: A Practical Look at Passive Investing

The S&P Europe 350 ESG Index: Defining Europe’s Sustainable Core

TalkingPoints: The Dow Jones Islamic Market Global Technology Titans 50 Index

FATalks: The Past, Present, and Future of ESG Strategies

Bringing Transparency to an Emerging Asset Class: S&P Cryptocurrency Indices

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Leonardo M. Cabrer

Director, Global Research & Design

S&P Dow Jones Indices

EXECUTIVE SUMMARY

  • S&P Dow Jones Indices has developed a series of cryptocurrency indices to measure this new emerging asset class.
  • The S&P Cryptocurrency Indices are designed to have broad coverage since cryptocurrencies are not homogenous, and the level of activity beyond Bitcoin and Ethereum reflects a dynamic and evolving ecosystem.
  • The goods and services provided by the projects (applications, protocols, and products created) in the ecosystem may add to the value of individual coins.
  • There is no global regulatory body for cryptocurrencies, nor is there consensus among regulators as to a response to these new innovations.
  • The S&P Cryptocurrency Indices have historically experienced high annualized returns accompanied by significant volatility and downside risk.
  • Indexing aims to bring accessibility and transparency to the digital assets market

INTRODUCTION

Because digital assets are an emerging asset class, it is helpful to discuss what cryptocurrencies (also referred to as "coins" in this document) are, how the asset class has grown, and how they are regulated. As cryptocurrencies are not identical in terms of what they offer, it is also important to understand how they can be used, along with some of the real and perceived challenges related to the asset class. This background helps to provide added context to the need for indexing to bring accessibility and transparency to this new market. The S&P Cryptocurrency Indices aim to meet these challenges. The indices are designed to serve as benchmarks for the performance of a selection of cryptocurrencies that are listed on recognized, open exchanges while meeting liquidity and market capitalization criteria.

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RIATalks India: A Practical Look at Passive Investing

RIA Talks India is an interview series where industry thinkers share their thoughts and perspectives on a variety of market trends and themes impacting indexing and passive investing in India.

Koel Ghosh, Business Head & CEO, Asia Index Pvt. Ltd., S&P Dow Jones Indices (S&P DJI) chatted with Suresh Sadagopan, Founder, Ladder7 Financial Advisories to get his take on using passive investing as a tool for risk management.

Koel: As an index provider, S&P Dow Jones Indices would like to better understand how financial advisors use products based on indices. Please tell us about passive products like ETFs and index funds that can be used in an advisor toolkit in India.

Suresh: As a financial advisor, the choice to include various products in a portfolio is dependent upon the investor’s risk appetite, reward expectation, liquidity and tenure needs, taxation, etc. While choosing products, advisors will also have to contend with managed products and passive ones. There are merits on both sides, in some subcategories at least.

In the large-cap space, most funds are not able to beat index returns, after adjusting for fees. In mid- and small-cap spaces, active funds seem to be able to beat passive funds more frequently. Hence, having some ETFs or passive funds may be helpful in the large-cap category. Also, in the smart beta (or factor) investing space, many ETFs (and passive funds) have started sprouting up, and they could be good candidates to consider in certain portfolios.

Koel: What are some of the strategies you use, and what are the potential benefits of including passive products in a portfolio?

Suresh: It is our belief that capturing the wisdom of the markets will eventually shine over stock-picking skills. However, it may take some time to mature in India before we get to a stage similar to what the U.S. is experiencing now.

We use ETFs and passive funds that track broad indices. We also use smart beta funds as a satellite strategy in our overall passive investing strategy. However, what we do differs from client to client.

The benefits of passive investing can be manifold. Fund manager risk is mitigated, and typically lower-cost investing is facilitated. Passive vehicles may also have advantages for long-term investment in that the underlying index reconstitution infuses dynamism for a portfolio of stocks. It can help to create a manageable portfolio that encompasses nearly the entire market.

Koel: How do you position your ETF use to clients?

Suresh: We prefer index funds for their liquidity, ease of trade, lack of impact costs, and buyback. We educate our clients about why passive investing may be a good strategy and why we are choosing that for them. We also explain all the typical benefits of the passive products, including potentially the lower cost, mitigation of fund manager risk, automatic alignment periodically to a well-constructed index, etc.

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The S&P Europe 350 ESG Index: Defining Europe’s Sustainable Core

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Michael Orzano

Senior Director, Global Equity Indices

S&P Dow Jones Indices

The S&P Europe 350 ESG Index is designed to meet the needs of today’s sustainability-minded investors.  Launched in 2019, this index was designed to represent the large-cap European market while offering an improved sustainability profile by excluding those companies that do not align with basic environmental, social, and governance (ESG) principles.  Further, this index is a potential solution for investment product providers seeking to adopt an index to meet the requirements of regulations, such the European Union Sustainable Finance Disclosure Regulation (SFDR).

Rather than focusing on one aspect of ESG, the S&P Europe 350 ESG Index provides insights into a wide variety of sustainability issues, such as governance, gender diversity, the environment, human rights, risk culture, cyber security, tax strategy, and many others.  The index integrates ESG scores made from 600 to 1,000 datapoints on individual issues at each company.

The S&P Europe 350 ESG Index is broad in its exposure, spanning the 11 GICS® sectors so that it is balanced in its sector composition like the underlying index, the S&P Europe 350.  This alignment is a powerful tool, ensuring that the S&P Europe 350 ESG Index faithfully represents the broad European market.

In this paper, we outline why the S&P Europe 350 ESG Index is a compelling choice for European investors and provide an overview of its methodology, sustainability attributes, and risk/return characteristics.

THE STARTING POINT: AN OVERVIEW OF THE S&P EUROPE 350

The first key to the S&P Europe 350 ESG Index is understanding the S&P Europe 350.  Introduced by S&P DJI in 1998, the S&P Europe 350 represents the European portion of the S&P Global 1200, which aggregates into one benchmark several other widely followed regional indices, including the S&P 500®, S&P/TSX 60, and other leading indices.

The S&P Europe 350 is a float-adjusted, market-capitalization-weighted index that includes the largest and most liquid stocks from developed Europe.  The index is managed in the same way as the S&P 500, in that the 350 companies are selected by the Index Committee according to a clearly defined and transparent set of rules.  Constituents are selected for the index based on size and liquidity, as well as on country and sector representation.  Like the S&P 500, the S&P Europe 350 does not simply include the largest 350 stocks in the region.  Rather, the index includes leading companies from each of the 11 GICS sectors across the 16 markets in the region.

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TalkingPoints: The Dow Jones Islamic Market Global Technology Titans 50 Index

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John Welling

Director, Global Equity Indices

S&P Dow Jones Indices

Accessing the global technology sector in a Shariah-compliant way with the Dow Jones Islamic Market (DJIM) Global Technology Titans 50 Index.

1. What’s driving interest in the DJIM Global Technology Titans 50 Index now?

In recent years, the world’s largest global technology companies have become the dominant drivers of markets and the backbone of global economic growth. These innovative companies have changed the way we work, shop, travel, and communicate with others. At the same time, demand has increased for lower cost, index-based solutions to capture this important segment of the market in a Shariah-compliant manner. By measuring the largest global technology companies that pass Shariah screens, as defined by the world’s original global Islamic index series, the DJIM Global Technology Titans 50 Index meets this demand.

2. How does the index work?

The DJIM Global Technology Titans 50 Index is built from the same underlying framework as the DJIM World Index. Technology companies are identified using the Dow Jones Industry Classification System, which implements a broad, inclusive definition to capture the segment across industries. The top 50 companies are then selected by float market cap rank. This results in a representative set of globally recognized, liquid, blue-chip technology companies. The index components are selected and reweighted by float market cap on a quarterly basis.

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FATalks: The Past, Present, and Future of ESG Strategies

FA Talks is an interview series where industry thinkers share their thoughts and perspectives on a variety of market trends and themes impacting indexing.

Glenn Ambach of Efficient Market Advisors (EMA) discusses why EMA was one of the first agencies to launch ESG versions of its strategies in 2018.

Efficient Market Advisors (EMA) is a pure ETF strategist firm dedicated to providing balanced asset allocation strategies using ETFs. EMA was founded in 2004, giving it one of the longest track records in the industry. In 2017, EMA was purchased by Cantor Fitzgerald and now operates as a business within the firm’s asset management unit, Cantor Fitzgerald Investment Advisors. The firm launched ESG versions of its strategies in 2018, making it one of the first agencies to do so.

S&P DJI: Why launch ESG strategies back in 2018 before they had more mainstream adoption?

Glenn: As an asset manager, one of the most appealing aspects of incorporating ESG is that it differentiates our firm as well as the advisors that utilize our strategies. It also presents the opportunity to be a leader both within the industry, as ESG is adopted more and more, and with clients who are increasingly demanding investment firms incorporate ESG considerations.

In terms of demand for ESG investing, we have seen a big shift toward incorporating ESG investing at the institutional level. We have also seen large inflows into ESG funds at the retail level. Historically at the retail level, demand was most often associated with women and millennials. For example, according to a 2017 report from the Morgan Stanley Institute for Sustainable Investing, 84% of women and 86% of millennials were interested in ESG investing. However, since launching our strategies, we have seen an increase in interest across all demographics, and I think ESG investing is something that appeals to a wider audience of investors. For example, we now have a nearly equal amount of women and men who choose our ESG strategies, with a distribution of clients across all age groups—in fact, most are over 40 years of age, indicating strong interest among older generations.

From a portfolio perspective, there has been growing evidence of the potential for the financial benefits of incorporating ESG analysis. Research has shown companies that score high in ESG factors had reduced costs, increased efficiency, lower risk of fines, and lower cost of capital, which may contribute to improved corporate financial and investment performance.

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