FATalks: Factors, Risk, and Why Passive Outperforms over Time

Spotlight on Japan: How Carbon-Efficient Indices Can Shape the ESG Landscape

FAQ: S&P/B3 Brazil ESG Index

TalkingPoints: How Diversification and Index Innovation Are Powering Passive in India

FAQ: S&P/TSX 60 Dividend Points Index

FATalks: Factors, Risk, and Why Passive Outperforms over Time

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

Larry Swedroe is Chief Research Officer of Buckingham Wealth Partners. Since joining the firm in 1996, Larry has spent his time, talent, and energy educating investors on the benefits of evidence-based investing with enthusiasm few can match.

Larry was among the first authors to publish a book that explained the science of investing in layman’s terms, “The Only Guide to a Winning Investment Strategy You’ll Ever Need.” He has since authored seven more books, co-authored eight more, and has had articles published in the Journal of Accountancy, Journal of Investing, AAII Journal, Personal Financial Planning Monthly, and Journal of Indexing.

S&P DJI: You recently participated in a webinar geared toward financial advisors titled “How Did COVID-19 Affect Active vs. Passive Performance?” in which SPIVA® results through the initial wave of the pandemic were analyzed. What were your biggest takeaways from the analysis of this data?

Larry: One of the biggest myths that Wall Street wants and needs investors to believe in order to keep them playing the game of active management and paying higher fees is, “Active management maybe doesn’t win in bull markets due to a cash drag, but these managers will protect you in bear markets.” I might be willing to accept a lower return in the long run if I get insurance in the really bad market environments, especially if I’m a retiree in the withdrawal phase. The truth is, active managers generally tend to actually do a little bit worse in bear markets than bull markets. One study found[1] that in every single turning point in the market, the average active manager got it wrong. For example, when the market was at a peak in March 2000, active managers had the least amount of cash and at the bottom in 2008-2009, they had the most cash.

This data is in line with the period we examined in the webinar. During the initial stages of the COVID-19 crisis, even though active managers had the ability to go to cash, almost two-thirds still underperformed. Every year, I hear that this is a stock picker’s year, but it has never overall been a stock picker’s year when you adjust for risk appropriately.

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Spotlight on Japan: How Carbon-Efficient Indices Can Shape the ESG Landscape

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Mona Naqvi

Global Head of ESG Capital Markets Strategy

S&P Global Sustainable1

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Ryan Heslin

Senior Analyst, ESG Capital Markets Strategy, S&P Global Sustainable1

S&P Dow Jones Indices


The S&P Global Carbon Efficient Index Series is designed to reduce carbon exposure while maintaining similar levels of risk/return to the benchmark.  Most notably, the index series incentivizes behavioral change among companies by uniquely encouraging two things:

  • Greater corporate transparency by rewarding companies that disclose greenhouse gas (GHG) emissions with a 10% boost in index weight; and
  • The diversification of company business models toward low-carbon alternatives as companies seek to improve their standing in the index.

The latter is achieved by assessing the carbon performance of companies (based on GHG emissions data from Trucost), sorting them into deciles within GICS® industry groups, and reweighting accordingly.  However, since some industries are inherently more GHG emitting than others, our methodology considers the spread of possible emissions within an industry group and increases or decreases company weights by either a greater or lesser extent, depending on how much a company can feasibly improve given current available technologies.

For example, a highly carbon-efficient Energy company in the top decile of the broad-ranging Energy industry is likely to be far ahead of its peers and, thus, deserves a significant weight increase of 120%.  Conversely, a Media company in the top decile of the smaller-ranging Media industry only receives a small weight increase of 20%, as it is only slightly ahead of its peers.  Vice versa, a high-emitting Energy company in the bottom decile would get a weight reduction of 90% versus just 15% for a Media company in the same position (see Exhibit 1).  As such, companies are incentivized to both disclose and decarbonize to boost their overall standing—to the extent that they are able to. 

Spotlight on Japan: How Carbon-Efficient Indices Can Shape the ESG Landscape: Exhibit 1

The S&P Global Carbon Efficient Index Series is designed to measure financial markets worldwide and offers market participants the opportunity to reduce their exposure to carbon risk.  The methodology is also sector neutral, amounting to a carbon reduction of 20%-60% relative to the underlying benchmarks, with low tracking errors and comparable returns, thereby demonstrating that there need not be an inherent trade-off between investment performance and decarbonization.  In theory, the carbon performance of the S&P Global Efficient Carbon Index Series should further improve over the long term, as companies adapt their behavior and as the indices continue to grow in popularity among market participants.  Indeed, our initial results to date suggest that they are already heading in that direction.

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FAQ: S&P/B3 Brazil ESG Index


  1. Who is S&P Dow Jones Indices?  S&P Dow Jones Indices (S&P DJI) is home to iconic financial market indicators, such as the S&P 500® and the Dow Jones Industrial Average®. The largest global resource for essential index-based market concepts, data, and research, it is a major investor resource to measure and trade the markets.

    S&P Dow Jones Indices has been a pioneer in environmental, social, and governance (ESG) indexing for 20 years, starting with the 1999 launch of the Dow Jones Sustainability World Index. Today, we offer an extensive range of indices to fit varying risk/return and ESG expectations, from core ESG and low-carbon climate approaches, to thematic and fixed income ESG strategies.

  2. Who is SAM?  SAM was founded in 1995 and has been a partner of S&P Dow Jones Indices since 1999, when they worked together to launch the Dow Jones Sustainable Index (DJSI) Series. SAM provides ESG Research and Benchmarking and conducts the annual SAM Corporate Sustainability Assessment (CSA). SAM was formerly a part of asset manager RobecoSAM. In January 2020, it became a part of S&P Global.


  1. What is the S&P/B3 Brazil ESG Index?  The S&P/B3 Brazil ESG Index is an S&P DJI ESG Score-weighted, broad-based index that seeks to measure the performance of stocks meeting sustainability criteria. The index applies exclusions based on business activities and United Nations Global Compact (UNGC) scores. ESG stands for environmental, social, and governance.
  2. What are the S&P DJI ESG Scores?  S&P DJI ESG Scores are environmental, social, and governance scores that robustly measure ESG risk and performance factors for corporations, with a focus on financial materiality. The S&P DJI ESG Scores are used in the constituent weighting process in the S&P/B3 Brazil ESG Index. They are a second set of ESG scores calculated by SAM, in addition to the S&P Global ESG Scores (formerly known as SAM ESG Scores) that are used to define the Dow Jones Sustainability Indices constituents.

    The S&P DJI ESG Scores are the result of further scoring methodology refinements to the S&P Global ESG Scores. These are based on SAM’s annual Corporate Sustainability Assessment (CSA), a bottom-up research process that aggregates underlying company ESG data to score levels. The scores contain a total company-level ESG score for a financial year, comprising individual environmental (E), social (S), and governance (G) dimension scores, beneath which there are on average 21 industry-specific criteria scores that can be used as specific ESG signals (see Exhibit 1).

    FAQ: S&P/B3 Brazil ESG Index: Exhibit 1

    A company’s total ESG score is the weighted average of all criteria scores and their respective weights. Each individual ESG dimension score (e.g., a company’s “E” score) is the weighted average of all criteria scores and weights within a specific ESG dimension. Total ESG scores range from 0-100, with 100 representing the best performance.

    For more information on the S&P DJI ESG Scores, please see the S&P DJI ESG Scores Frequently Asked Questions.

  3. How are the S&P DJI ESG Scores used in this index?  S&P DJI ESG Scores are used in the weighting of the S&P/B3 Brazil ESG Index. Companies in the eligible universe (see question 3 in the Methodology section) are weighted by S&P DJI ESG Score, subject to weighting caps and liquidity constraints (see question 6 in the Methodology section).
  4. Can this index be customized?  Yes. This index is an example of how the S&P DJI ESG Scores can be used in an index strategy. For further information on the scores or options for customizations, please contact your S&P DJI account representative, or visit /spdji/en/contact-us/.
  5. How does the index perform relative to its benchmark, the S&P Brazil BMI?  Index performance statistics are presented for all S&P DJI indices on their index factsheets, found via The index factsheet for the S&P/B3 Brazil ESG Index can be accessed at /spdji/en/indices/esg/sp-b3-brazil-esg-index/.

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TalkingPoints: How Diversification and Index Innovation Are Powering Passive in India

Passive investing continues to climb in India, with a CAGR of 49% over the last decade. As regulations and markets continue to evolve, how large is the potential of passive in India and what strategies are in the mix that could fuel this upward trajectory?

1. What are the main drivers of passive investing in India?

Koel: The passive investment space is in its nascent stage in India, though it is growing steadily. At over USD 25 billion assets under management and nearly 86 products, this space accounts for a small percentage of the USD 6 trillion global passive market. The potential of passive is slowly being unleashed through education and awareness, along with government support. The Employee Provident Fund’s allocation to ETFs and the disinvestment program routed through the same passive option has created the opportunity for more visibility and understanding for investors. Further, the underperformance of active funds in particular categories reflected in our bi-annual S&P Indices vs. Active (SPIVA®) research, continues to fuel interest in passive strategies in the region.  

2. What kinds of passive strategies are Institutional Investors using in India and where do you see potential for future innovation?

Pratik: Asset managers in India have embraced passive innovations, using strategies designed to access sectors and industries like banking, and themes including Environmental, Social, and Governance (ESG) and consumption are gaining traction. Smart beta (or factor-based investing) as a category has also seen continued innovation, both in single- and multi-factor strategies. The biggest impediment for the success of passive funds has been education and awareness. With higher awareness, we would expect interest in traditional index-based and smart beta products to increase in the future. Vanilla products may have a larger role to play in building the marketplace before more innovative products take off. Due to regulations and liquidity factors, large-cap ETFs are currently the preferred passive instruments for institutional investors. 

3. Can you discuss the importance of diversification and how indices can inform asset allocation decisions?

Koel: Diversification is a well-established investment approach for minimizing risk. Indices provide an ideal avenue for assessing the performance of a market segment and, when underlying an index-based product, for accessing a basket of securities that is aligned with an investment objective thanks to the transparency of S&P DJI’s index methodologies. Indices cover a wide range of market segments and strategies that vary from regional equity benchmarks like the S&P 500® for the U.S. and the S&P BSE SENSEX for India, sectors like Healthcare and Information Technology, factors like low volatility and quality, different asset classes, or strategies combining factors, or those tracking themes such as dividends. 

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FAQ: S&P/TSX 60 Dividend Points Index

  1. What are “dividend points”?  Index points refer to the level of an index.  For example, if the S&P/TSX 60 is trading at 900, it is said to have a level of 900 points.  Dividend points specifically refer to the level of index points that are directly attributable to the dividends of index constituents.
  2. What’s the difference between dividend points indices and other types of indices, like price return and total return indices?  Price return indices represent changes in the market capitalization of index constituents.  They do not account for dividends.  Total return indices reinvest dividends back into the index on the ex-date of each dividend paying constituent.  Total return indices therefore represent changes in market capitalization plus reinvested dividends.  Finally, dividend points indices track dividend payments in isolation, reflecting the periodic cumulative dividends of all index shares.  They do not include any changes in market capitalization.
  3. One can think of the different types of indices as representing different investment strategies.  Some market participants elect to reinvest dividends in the stocks they hold, and this strategy could be benchmarked with the S&P/TSX 60 TR.  On the other hand, some market participants hold stocks but do not reinvest dividends—electing instead to take dividends in cash as a source of income.  This strategy could be benchmarked with a combination of the S&P/TSX 60 Price Return and the S&P/TSX 60 Dividend Points Index.

  4. Why is there a dividend points index?  By offering an index that represents dividend payments of S&P/TSX 60 members, S&P Dow Jones Indices (S&P DJI) allows market participants to track an important component of equity returns—independently of equity price changes.  The index can also be used as a basis for financial products.
  5. Can I invest in dividend points?  No, not directly.  Like other indices, it is not possible to invest directly in dividend points indices.
  6. How many S&P/TSX 60 Dividend Points indices are there?  There is one index that resets quarterly and one that resets annually.  They are called the S&P/TSX 60 Dividend Points Index (Quarterly) and the S&P/TSX 60 Dividend Points Index (Annual).
  7. Why does the index periodically reset at zero?  The index represents cumulative cash dividends paid over a defined period, either one quarter or one year.  At the start of the next period, the index is reset to zero so that it reflects dividends paid in discrete periods that coincide with the expiration of S&P/TSX 60 futures.  Having the index reset when futures expire is useful because it enables the index to potentially be used as the underlying index for financial instruments that could be designed to hedge periodic dividend risk of index futures. 
  8. Resetting also allows for comparisons of dividend payouts from one period to another.  One can measure changes in dividends from one period to another.

  9. When does the index reset at zero?  The S&P/TSX 60 Dividend Points Index (Quarterly) resets after the market close on the third Friday of the last month of each calendar quarter.  This coincides with S&P/TSX 60 futures expiration.  The S&P/TSX 60 Dividend Points Index (Annual) resets only on the third Friday of December.
  10. How have S&P/TSX 60 dividends grown over the years?  Measured year-over-year, the annualized growth rate of dividends was about 5.3% for the five-year period from July 2015 to July 2020.
  11. How much of the total return of the S&P/TSX 60 has been due to dividends?  Over the same five-year period from July 2015 to July 2020, the S&P/TSX 60 TR grew about 5.8% per year.  Approximately 56% of this growth came from the reinvestment of dividends.
  12. What dividend payments are included in the S&P/TSX 60 Dividend Points Index?  The index represents dividends paid by S&P/TSX 60 constituents that are also included in the S&P/TSX 60 TR.  The determination of which dividends are included in the total return index is described in the S&P/TSX Canadian Indices Methodology.
  13. Are special dividends included in the index?  Only stock and cash dividends, as defined in the S&P/TSX Canadian Indices Methodology, are included.
  14. Do dividends get counted on the ex-date or pay date?  Dividends are added on the ex-date.  This is consistent with the S&P/TSX 60 TR.  Since stock prices are adjusted downward to account for dividends on the ex-date, this method is more straightforward than adding dividends on the pay date.
  15. How is the index calculated?  On each trading day, S&P DJI sums the dividends of all index shares going ex-date and divides that figure by the S&P/TSX 60 divisor, which transforms the CAD value into index points.  Dividend payments in USD are translated into CAD at the same exchange rate used for the total return index.  Except for the reset day, these index points are added to the cumulative total for the respective period to derive the value of the S&P/TSX 60 Dividend Points Index for that day.

For more information on the S&P/TSX 60 Dividend Points Index, please visit our website:

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