IN THIS LIST

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

TalkingPoints: Capturing the Growth of the Chinese Technology Industry

InstitutionalTalks: Why Multi-Factor Index Construction Matters

Regional Relevancy of S&P 500 and Dow Jones Industrial Average Futures in Asia

FAQ: S&P PACT™ Indices (S&P Paris-Aligned & Climate Transition Indices)

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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TalkingPoints: Capturing the Growth of the Chinese Technology Industry

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John Welling

Director, Global Equity Indices

The S&P China Tech 50 Index highlights a unique and innovative set of high-tech companies across multiple sectors in the Chinese market.

1. Why was the S&P China Tech 50 Index introduced?

As China continues its transformation toward "new economy" sectors, technology plays an increasingly important role in the nation's economic and equity market composition. The S&P China Tech 50 Index is unique in that it is based on a transparent, well-established industry classification system (GICS®), and spans multiple industries in order to effectively capture the tech segment. Additionally, it prioritizes liquidity and capacity by limiting constituent count to 50 large, liquid companies.

2. How does the index work?

The S&P China Tech 50 Index uses a simple, rules-based process to select 50 of the largest and most liquid Chinese technology companies. The eligible universe includes all Chinese companies meeting minimum float-adjusted  market cap and liquidity thresholds that are accessible via Stock Connect or trade on a foreign exchange. All companies meeting these requirements and classified under the GICS groupings in Exhibit 1 are eligible for inclusion.

TalkingPoints: Capturing the Growth of the Chinese Technology Industry - Exhibit 1

The 50 largest companies (measured by total market cap) are selected and the index is weighted by float-adjusted market cap, subject to a 10% single stock cap. The index is rebalanced semiannually in March and September.

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InstitutionalTalks: Why Multi-Factor Index Construction Matters

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

Jeb Burns is the Chief Investment Officer of MERS of Michigan, where he directs the USD 15 billion investment program.

Julian Ramirez, CFA, is an Investment Officer and Portfolio Manager at MERS.

S&P DJI: Tell us a bit about your roles at MERS and the individuals you serve.

Jeb: The Municipal Employees’ Retirement System (MERS) of Michigan is an independent, professional retirement services company created to administer the retirement plans for Michigan’s local units of government on a not-for-profit basis. We manage various investment programs for over 900 municipalities throughout the state. We serve more than 100,000 participants, including local firefighters, nurses, and the men and women who plow our roads and keep our communities safe. Total assets for MERS as of June 30, 2021, were valued at USD 15.19 billion, with the defined benefit (DB) portfolio being the largest program, at USD 11.89 billion.

In my role as CIO, I am responsible for the investment management of the plan’s assets. This includes maintaining a successful investment team and culture, recommending and implementing the asset allocation for our investment programs, and regularly reporting to the board and investment committee on investment matters.

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Regional Relevancy of S&P 500 and Dow Jones Industrial Average Futures in Asia

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Izzy Wang

Analyst, Strategy Indices

Global markets are increasingly integrated, driven by the diversified global supply chain, deregulation of capital markets, and technological advances. The interconnection of global markets has been the key driver for co-movement of market returns, especially during periods of crisis. This has important consequences in terms of portfolio hedging and risk management.

Meanwhile, with the continued growth in exchange-traded derivatives supported by the need for increased price transparency and liquidity, investors have sought to efficiently integrate listed derivatives into their portfolios.

This paper presents the regional relevancy of S&P 500 and Dow Jones Industrial Average (DJIA) futures for hedging and risk management use by Asian investors.  While the ecosystem around the S&P 500 and DJIA covers multiple areas, including trading of options, ETFs, mutual funds, etc., we are only capturing part of the complexity of Asian trading by limiting the study scope to futures.  We evaluate the usefulness of those instruments through the following metrics.

  • Liquidity: As shown by aggregate U.S. dollar notional total value traded for the futures contracts on the two U.S. benchmarks during Asian trading hours.
  • Co-movements of markets: As measured by correlations between the two U.S. benchmarks and seven major Asian market benchmarks, based on daily returns of the futures prices at Asian end of day.
  • Flexibility: As indicated by contract size and trading hours of the futures on the two U.S. benchmarks versus other major Asian market benchmarks.

The results suggested certain benefits of trading U.S. benchmarks in Asia, providing a new perspective on the use of index derivatives to meet the needs of Asian investors.

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FAQ: S&P PACT™ Indices (S&P Paris-Aligned & Climate Transition Indices)

COMPANY BACKGROUND

  1. Who is S&P Dow Jones Indices?  S&P Dow Jones Indices (S&P DJI) is the largest global resource for essential index-based concepts, data, and research, and is home to iconic financial market indicators, such as the S&P 500® and the Dow Jones Industrial Average®.  More assets are invested in products based on our indices than products based on indices from any other provider in the world.  Since Charles Dow invented the first index in 1884, S&P DJI has been innovating and developing indices across the spectrum of asset classes, helping to define the way investors measure and trade the markets.

  1. Who is S&P Global Trucost?  S&P Global Trucost is a leader in carbon and environmental data and risk analysis and assesses risks relating to climate change, natural resource constraints, and broader environmental, social, and governance (ESG) factors.

    S&P DJI and S&P Global Trucost have a long history of collaboration since launching the first S&P Carbon Efficient Index Series in 2009.  Trucost was acquired by S&P Global in 2016.

S&P Paris-Aligned & Climate Transition Indices

  1. What are the S&P PACT Indices?  The indices are designed to measure the performance of eligible equity securities from an underlying benchmark index, selected and weighted to be collectively compatible with a 1.5ºC global warming climate scenario and to meet several other climate-themed objectives at the index level, as of each rebalance.  PA and CT stand for the S&P Paris-Aligned Climate Indices and S&P Climate Transition Indices, respectively.
  1. Why were the S&P PACT Indices created? The indices aim to incorporate: (a) factors that seek to manage transition risk, physical risk, and climate change opportunities, as proposed by the Financial Stability Board’s Task Force on Climate-related Financial Disclosure (TCFD);(b) the minimum standards for the EU Climate Transition Benchmarks (CTBs) and EU Paris-aligned Benchmarks (PABs), as proposed by the Technical Expert Group on Sustainable Finance (TEG) in its final report of September 2019; and (c) forward-looking scenario analysis.  The final delegated acts were published on Dec. 23, 2020.

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