IN THIS LIST

ETFs Turn 20 in Australia: How the S&P/ASX Series Propelled the Growth of Index Investing

Dividend Strategy with Quality Yields – The Dow Jones Dividend 100 Indices

The S&P IPSA ESG Tilted Index: A New Benchmark for Measuring Sustainability in Chile

TalkingPoints: The Performance and Sector Diversification of the S&P BSE SENSEX 50

FAQ: S&P Cryptocurrency Index Series

ETFs Turn 20 in Australia: How the S&P/ASX Series Propelled the Growth of Index Investing

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Michael Orzano

Senior Director, Global Equity Indices

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Ryan Christianson

Associate Director, APAC Lead, ESG Indices

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Sherifa Issifu

Associate, Index Investment Strategy

Since its debut in April 2000, the S&P/ASX Index Series has helped to define the Australian equity market. As Australia’s most widely followed market indicator, the S&P/ASX 200 serves as the de facto measure of the value and performance of the nation’s stock market. Market peaks and valleys are defined by the level of the S&P/ASX 200.

 

Beyond the headlines, however, the index series serves an integral role in Australia’s investment infrastructure. For example, the fund  anagement industry utilizes the S&P/ASX 200 and other S&P/ASX Indices to serve as the investable universe for active investment strategies and to benchmark fund performance. Likewise, asset owners, such as superannuation funds, use S&P/ASX Indices to benchmark their domestic
portfolios. With an estimated AUD 319 billion1 in Australian equity funds benchmarked to S&P/ASX Indices, the series represents by far the most widely used benchmarks for Australian investment funds.

Perhaps most importantly, the S&P/ASX Index Series has served as the foundation for the growth of indexbased investing in Australia, including
the nation’s first exchange-traded fund (ETF). The deep ecosystem of liquid financial products tracking key S&P/ASX Indices allows active and passive investors to express investment views in an efficient manner. S&P Indices Versus Active (SPIVA®) research has also shined a light on the inability of most Australian fund managers to beat their benchmarks, further highlighting the benefits of passive investing. As has occurred in other parts of the world, the growth of index investing has democratized investment solutions that were previously only available to large institutions and lowered the cost of investing for millions of Australians.

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Dividend Strategy with Quality Yields – The Dow Jones Dividend 100 Indices

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Tianyin Cheng

Senior Director, Strategy Indices

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Izzy Wang

Analyst, Strategy Indices

INTRODUCTION

Dividend-paying stocks have been in focus over the past decade—many income seekers have turned away from low-yielding fixed income instruments and are looking to equity markets for a more attractive level of income.  However, high-yielding companies without strong financial stability may be prone to dividend cuts under the pressure from global economic uncertainties and future rising rates.  Thus, an investment strategy searching for high yield should focus on quality as well.

Among different kinds of income-focused equity indices in the market, the Dow Jones Dividend 100 Index Series takes a unique approach.  It seeks to track the performance of 100 high-dividend-yielding stocks in each market covered that have a record of consistently paying dividends, selected for solid fundamental strength.

S&P DJI launched the Dow Jones U.S. Dividend 100 Index in 2011.  Recently, we expanded the index series to international markets with the launch of the Dow Jones International Dividend 100 Index.  This paper investigates the following potential benefits of the Dow Jones Dividend 100 Indices.

  • Sustainable dividends with financial quality. The indices not only seek to track stocks with consistent dividend payouts, but they also apply a quality screen for the sustainability of yields.  They seek to achieve “quality yields” by requiring stocks to have paid dividends for a minimum of 10 consecutive years, and by ranking stocks by a composite score calculated from the cash-flow-to-total-debt ratio, return on equity (ROE), dividend yield, and five-year dividend growth rate.  In addition to the fundamental annual rebalancing, starting from July 2018, S&P DJI introduced a monthly dividend review as an on-going maintenance to ensure dividend sustainability.  Every month, stocks that have canceled their dividends will be removed from the indices.
  • Dividend growth against future rising rates. A focus on dividend growth in an environment where market participants are concerned about rising rates may be important.  Typically, high-yield equity strategies are biased toward rate-sensitive sectors, which tend to pay out higher yields because of the leverage that they can take on (mainly because of mature business models; e.g., Utilities).  Such entities are exposed when rates rise.  Selection based on dividend growth helps to ensure that firms that can develop their business and increase their payouts are favored in the selection process.  Such businesses are often well-managed companies, from both capital structure and operational perspectives.
  • Investability. Differentiating the Dow Jones Dividend 100 Indices from other dividend strategies are their strict size and liquidity screens and their weighting method, which is based on a modified market capitalization approach.  These attributes were chosen with the goal of increasing index investability in terms of liquidity, capacity, and turnover.  Size and liquidity screens could help to reduce the influence of smaller and more distressed stocks on the portfolio, leading to a liquid basket of constituents.  A weighting method based on modified market capitalization could not only help maximize the index capacity, but it also has potential to lead to a lower turnover than alternatively weighted income indices, that weight constituents primarily by yield or total dividends.

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The S&P IPSA ESG Tilted Index: A New Benchmark for Measuring Sustainability in Chile

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Cristopher Anguiano

Senior Analyst, Global Research & Design

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Reid Steadman

Managing Director, Global Head of ESG & Innovation

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María Sánchez

Associate Director, Global Research & Design

INTRODUCTION

Indices that integrate environmental, social, and governance (ESG) data are moving from the margins to the mainstream, as market participants increasingly seek to align their values with their investments.  A new type of ESG index is emerging to facilitate this change in Chile: the S&P IPSA ESG Tilted Index. Jointly developed by S&P Dow Jones Indices (S&P DJI) and the Santiago Stock Exchange (BCS or Bolsa de Comercio de Santiago), this index not only highlights strong ESG companies, it also enables allocation to such companies while aiming to limit major risks relative to the market.

THE EVOLUTION OF ESG INDICES

In 1999, S&P DJI launched the first global ESG index, the Dow Jones Sustainability™ World Index (DJSI World).  It includes the top 10% of companies, industry by industry, according to their ESG performance, as determined by the Corporate Sustainability Assessment (CSA) conducted by S&P Global. This groundbreaking index encouraged companies to incorporate many ESG factors in their decisions, extending them beyond short-term financial considerations.

In the years that followed, other indices, including regional versions of the DJSI World such as the DJSI Emerging Markets, were launched with this same philosophy in mind: to highlight best-in-class companies and thereby inspire firms to improve their ESG approaches in order to qualify for inclusion in these indices.

Though these indices have been successful and have indeed inspired companies to change in positive ways, aspects of their methodologies may present challenges for many investors.  Some strategies can be too narrow for investors who want to remain broadly diversified.  Though many high-conviction market participants use the narrow, best-in-class indices for investment, we saw a need for ESG indices with returns more in line with the broader market, while providing a more sustainable portfolio of companies.

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TalkingPoints: The Performance and Sector Diversification of the S&P BSE SENSEX 50

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Ved Malla

Associate Director, Client Coverage

Dig deeper into how the index tracking the 50 largest and most liquid stocks in India seeks to deliver diversification by design.

1. Passive investment continues to gain traction in India. Could you tell us more about the themes and asset classes that have received attention in recent years, and how index innovations are contributing to that growth?

Ved: There has been a surge in growth of ETFs in recent years in India, mainly due to investments from the Employees’ Provident Fund Organisation flowing into ETFs. The past year has also witnessed a large increase in passive schemes being launched by mutual funds — about 30 new schemes were launched in the passive space last year in India, and many more have been filed for approval with the regulator. In the past financial year, the AUM of passive funds have increased by 90% to over 3 lakh crores. There has also been an increase in the interest in products on global indices. Some asset managers are now exploring this space eagerly for global diversification and product differentiation. The themes that are gaining interest in India are ESG, factors, thematics, and global index strategies.

2. How was the S&P BSE SENSEX 50 designed and why might the index matter to market participants in general?

Ved: The S&P BSE SENSEX 50 is designed to measure the performance of the top 50 largest and most liquid companies in India. The index constituents are weighted based on the float-adjusted market cap and must have a minimum annualized trading value of INR 10 billion. The S&P BSE SENSEX 50 is also a highly diversified and liquid index. The returns of the index have been promising over the past 10 years; its 10-year absolute return was 230%. The annualized returns for the 3-, 5-, and 10-year periods have also been promising, at about 15%, 16%, and 13%, respectively.

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FAQ: S&P Cryptocurrency Index Series

  1. What are the S&P Cryptocurrency Indices? These indices are designed to measure the performance of a selection of cryptocurrencies, also referred to as “coins” in this document, that meet minimum liquidity and market capitalization criteria and are listed on trading facilities (referred to within this document as “exchanges”) included among the primary markets covered by the Lukka Prime data product published by Lukka, Inc. In the cryptocurrency context, market capitalization refers to the product of coin supply at a given point in time multiplied by coin price. The term exchange as used in this FAQ does not refer to a “national securities exchange” that has registered with the Securities Exchange Commission (SEC) or other comparable securities exchange registered in another jurisdiction.
  2. Why was the S&P Cryptocurrency Index Series created? The S&P Cryptocurrency Index Series was launched to bring transparency to the emerging cryptocurrency market. For more background, visit https://www.spglobal.com/spdji/en/landing/investment-themes/sp-cryptocurrency-indices/

  1. What indices are in the S&P Cryptocurrency Index Series? As of July 13, 2021, the S&P Cryptocurrency Index Series includes the following eight indices:
    • S&P Bitcoin Index: This index is designed to track the performance of the digital asset Bitcoin.
    • S&P Ethereum Index: This index is designed to track the performance of the digital asset Ethereum.
    • S&P Cryptocurrency MegaCap Index: This index is designed to track the performance of the digital assets Bitcoin and Ethereum weighted by market capitalization.
    • S&P Cryptocurrency Broad Digital Market (BDM) : This index is designed to measure the performance of digital assets that meet minimum liquidity and market capitalization criteria and that are covered by our price provider Lukka. The index is meant to reflect a broad investable universe.
    • S&P Cryptocurrency LargeCap Index: This index is a subset of the S&P Cryptocurrency BDM Index designed to track the constituents with the largest market capitalization.
    • S&P Cryptocurrency BDM Ex-MegaCap Index: This index is designed to track the constituents of the S&P Cryptocurrency Broad Digital Market Index, excluding the constituents of the S&P Cryptocurrency MegaCap Index.
    • S&P Cryptocurrency BDM Ex-LargeCap Index: This index is designed to track the constituents of the S&P Cryptocurrency Broad Digital Market Index, excluding constituents of the S&P Cryptocurrency LargeCap Index.
    • S&P Cryptocurrency LargeCap Ex-MegaCap Index: This index is designed to track the large-cap constituents of the S&P Cryptocurrency Broad Digital Market Index, excluding the constituents of the S&P Cryptocurrency Mega Cap Index.

    See the S&P Digital Market Indices Methodology for additional details on these indices.

  2. Why does the series include ex-mega and ex-largecap indices? As of June 30, 2021, the two largest cryptocurrencies comprised approximately 63% of the market capitalization of the total cryptocurrency market. In the recent past, they accounted for over 80% of the total market capitalization. By excluding the two largest cryptocurrencies in the S&P Cryptocurrency BDM Ex-MegaCap and S&P Cryptocurrency LargeCap Ex-MegaCap Indices, smaller index constituents are more broadly reflected. The S&P Cryptocurrency BDM Ex-LargeCap Index is designed to provide perspective on the relatively smaller constituents of the S&P Cryptocurrency BDM Index. The large-cap index accounts for approximately 78% of total cryptocurrency market capitalization.1
  3. Can these indices be customized? Yes. For information on options for custom versions of the S&P Cryptocurrency Indices or custom crypto index calculation in general, please contact your S&P DJI account representative, or visit https://www.spindices.com/contact-us/.

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