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Potential Advantages of a Lower Allocation to Energy: The S&P GSCI Light Energy

InsuranceTalks: Why Insurers Are Increasingly Considering Infrastructure Investments as Core

FA Talks: A Practitioner’s Guide to Accessing Next Gen Sectors with AI

TalkingPoints: Exploring Fixed Income in Africa

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

Potential Advantages of a Lower Allocation to Energy: The S&P GSCI Light Energy

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Jim Wiederhold

Associate Director, Commodities and Real Assets

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Fiona Boal

Head of Commodities and Real Assets

S&P Dow Jones Indices (S&P DJI) offers a number of strategies that track various commodities markets.  The most widely recognized of these is the S&P GSCI, which is designed to measure the performance of a broadbased, production-weighted, investable representation of the global commodities market. Energy-related futures make up more than half of the index composition.

For a less-energy-intensive commodity market measure, there is the S&P GSCI Light Energy. It tracks the same designated contracts as the headline S&P GSCI, but it divides its contract production weights in the energy sector by four, increasing the relative weights of other S&P GSCI commodity components. Therefore, the index offers a commodity exposure that is more evenly weighted across the five major commodity sectors: energy, industrial metals, precious metals, agriculture, and livestock.

Exhibit 1 compares the methodologies of the S&P GSCI Light Energy and the Bloomberg Commodity Index (BCOM). These two indices are representations of a more equal-weighted view of commodities markets. Their performance is similar, and due to lower energy weights, each index has shown much less volatility than the headline S&P GSCI.

Potential Advantages of a Lower Allocation to Energy: The S&P GSCI Light Energy Exhibit 1

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InsuranceTalks: Why Insurers Are Increasingly Considering Infrastructure Investments as Core

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

Robert Amodeo is Head of Municipals at Western Asset Management Company, LLC and has more than 30 years of investment experience. Since 2005, Robert has been part of Western Asset’s municipal bond investment team and is the sector head of that group.

S&P DJI: Tell us a bit about your role at Western Asset Management Company and how you serve the insurance space?

Robert: At Western Asset, I lead a team of investment professionals including portfolio managers, research analysts, and quantitative analysts with an average of 27 years of experience in the muni market. Our investment philosophy at the firm is centered around a long-term, fundamental value approach and this is woven into the portfolios we manage for insurance clients. Our firm manages over USD 85 billion of insurance company mandates for U.S. and international companies across business lines, including life, health, property/casualty, and reinsurance. Our muni portfolios reflect the unique objectives and constraints ranging from full discretion, total return focused clients to book yield focused clients that are constrained by capital, regulatory, and accounting considerations.

S&P DJI: Fixed income comprises a significant portion of insurers’ portfolios.What trends have you seen in terms of asset allocation within this sector in recent years?

Robert: Two trends we have been seeing in munis is the search for yield and the growing allocation in taxable bonds. Book yields have declined since the global financial crisis and many of our clients partner with us to generate yield for their general account assets via yield curve management, sector allocation, and security selection. We look to add value to their portfolios by capitalizing on opportunities in undervalued securities, out of favor industries, trading inefficiencies, and rising stars.Since December 2011, the aggregate market value and number of issues in the S&P Taxable Municipal Bond Index have grown 39% and 42%, respectively. A combination of factors including tax reform, relative value, and good capital treatment have also spurred interest from U.S. and international insurance companies in taxable munis.

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FA Talks: A Practitioner’s Guide to Accessing Next Gen Sectors with AI

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

How are financial advisors with an eye on the future using future-based tools to meet client goals today? 21st century sectors represent the foundation of the Fourth Industrial Revolution. The S&P Kensho New Economy Indices are designed to track emerging technologies that are reshaping traditional industries and driving this seismic shift. Lisa and Mark Bova of Lenity Financial see Financial Services as one of the industries at the forefront of these changes.

S&P DJI: How do you manage portfolios today at Lenity Financial?

Lisa: We utilize goals-based investing and use a tactical approach. One of the first questions we ask is about a client’s past experience with money, which includes long-term insights—meaning what they did or didn’t learn from their family. Based on their history, comfort level with risk, and their near-term needs and long-term goals, we work with our clients to determine their “risk budget,” which essentially defines how hard or not their money needs to work for them in order for them to reach their goals. Overall, we manage tactically. We can be overweight, underweight, or neutral on an asset class, segment of the market, or even risk. It all depends on the goals and risk budget of the individual client.

S&P DJI: Why was it important to you to find a passive solution using Artificial Intelligence to help meet clients’ needs?

Mark: In today’s markets, there is so much data and the market moves so quickly that we needed a way to effectively and efficiently process the constant stream of information. We were looking for a way to employ AI in our process and we found the S&P Kensho New Economy Indices. Kensho has a meaning—it is an initial insight or awakening. In what is believed by many to be the beginning of the Fourth Industrial Revolution, having the S&P Kensho New Economies in our toolkit made sense. We’re futurists and we see financial professionals working with machines as the way forward. Data is a critical component to AI. There has been so much data collected in the past several years, and S&P DJI has been one of the most pervasive providers of data for decades. Think of it, Henry Varnum Poor published An Investor’s Guide to the U.S. Railroad Industry in 1860. So, the ability to access the powerful combination of data and cutting-edge AI through the S&P Kensho New Economy Indices was a perfect fit for us.

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TalkingPoints: Exploring Fixed Income in Africa

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Kevin Horan

Director, Fixed Income Indices

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Zack Bezuidenhoudt

Head of Client Coverage, South Africa and Sub-Saharan Africa

S&P Dow Jones Indices (S&P DJI) made a commitment in 2014 to expand its fixed income coverage to Africa. The index development process started with a series of sovereign bond indices designed to represent and measure performance within the region. The S&P Africa Sovereign Bond Index seeks to track the performance of local currency-denominated sovereign bonds from 13 countries within Africa. The index series also includes a benchmark of  hard currency bonds issued in U.S. dollars, euros, and Japanese  yen, as represented by the S&P Africa Hard Currency Sovereign  Bond Index.

As a subindex of the S&P Africa Sovereign Bond Index, the S&P South Africa Sovereign Bond Index is designed to track the performance of ZAR-denominated sovereign debt publicly issued by the South African government.

S&P DJI also developed the S&P South Africa Sovereign Inflation-Linked Bond Index, which is a subindex of the S&P Global Emerging Sovereign Inflation-Linked Bond Index.

    What details are available for these indices?

S&P DJI builds indices with transparency in mind. These indices aim to make opaque fixed income information more transparent by providing bond-level information in addition to the index-level performance measurements. Our reports are informative, insightful, and organized in order to provide efficiency, in addition to being a tool for investment performance measurement.

The S&P South Africa Sovereign Bond Index

The S&P South Africa Sovereign Bond Index seeks to track the performance of South African rand-denominated sovereign debt publicly issued by the government of South Africa in its domestic market.

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FAQ: S&P PACT™ : 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 Trucost?  Trucost, a part of S&P Global, 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 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 (PACT) INDICES

  1. What are the S&P Paris-Aligned & Climate Transition (PACT) Indices?  The indices 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 at 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)[1]; (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[2] of September 2019; and (c) forward-looking scenario analysis.

    Note the proposals submitted by the TEG in the final report will serve as the basis for the European Commission to draft the delegated acts and therefore are subject to change.  As of the date of publication of this FAQ (April 2020), the European Commission had not published the final delegated acts. 

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