In This List

Sector Primer Series: Materials

Transition to a 1.5°C World with the S&P PACT™: S&P Paris-Aligned & Climate Transition Indices

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

降低能源配置的潛在優勢:
標普高盛輕能源指數

InsuranceTalks: Why Insurers Are Increasingly Considering Infrastructure Investments as Core

Sector Primer Series: Materials

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Sherifa Issifu

Analyst, Index Investment Strategy

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Hamish Preston

Associate Director, U.S. Equity Indices

The Global Industry Classification Standard® (GICS®) assigns a company to a single business classification according to its principal business activity. This assignment uses quantitative and qualitative factors, including revenues, earnings, and market perception. The sector is the first level of the four-tiered, hierarchical industry classification system that includes 11 sectors, 24 industry groups, 69 industries, and 158 sub-industries.

Within the GICS framework, Materials companies include those that are primarily engaged in:

  • Producing and manufacturing chemical products, including industrial chemical products;
  • Manufacturing construction materials, containers, and packaging;
  • Mining metals and the production of related products; and
  • Manufacturing paper and forest products.

COMPOSITION

The S&P 500® Materials comprises all companies in the S&P 500 that are assigned to the Materials sector by GICS. Created in 1957, the S&P 500 was the first broad U.S. market-cap-weighted stock market index. Today, it is the basis of many listed and over-the-counter investment instruments.

The Materials sector is the smallest by capitalization of the 11 sectors in the S&P 500, representing 2.53% of the index as of May 29, 2020. This compares to 6.04% and 4.95% for the S&P MidCap 400® and S&P SmallCap 600®, respectively. Overall, the Materials sector accounts for 2.72% of (and 146 securities within) the S&P Total Market Index; only the Energy sector (2.70%) accounts for less, by index weight.

With a total float-adjusted market capitalization of USD 641.43 billion, the S&P 500 Materials sector comprised 28 companies as of May 29, 2020. The two largest companies in the sector were Linde plc (LIN) and Ecolab Inc (ECL), with float-adjusted market caps of USD 108.69 billion and USD 53.31 billion, respectively. There were no Materials companies in the top 10 of the S&P 500—Linde plc ranked as the 53rd largest stock, representing 0.43% of the index. The mean market cap of S&P 500 Materials stocks was USD 22.91 billion, the median market cap was USD 13.79 billion, and the lowest market cap was USD 4.23 billion.

The largest five constituents accounted for 48.64% of the weight of the Materials sector, placing it seventh in the S&P 500 in terms of concentration.

Within the S&P 500 Materials, Chemicals was by far the largest industry, accounting for 71.24% of the sector as of May 29, 2020. The remaining sector weight was distributed across the Containers and Packaging (13.13%), Metals and Mining (11.52%), and Construction Materials (4.11%) industries. There were no companies in the Paper and Forest Products industry as of May 29, 2020. The three largest sub-industries were Specialty Chemicals (30.70%), Industrial Gases (25.25%), and Paper Packaging (9.50%)—the first two belong to the Chemicals industry.

A key feature of GICS is that it can evolve: its structure is intended to reflect the current state of the equity investment universe. S&P Dow Jones Indices and MSCI conduct annual reviews to ensure that the structure remains fully representative of the current global market. Although there have been few significant changes to the Materials sector—Chemicals has always been the largest industry, for example—the Paper & Forest Products industry weight in the S&P 500 declined since 1999, from 20% to 0%.

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Transition to a 1.5°C World with the S&P PACT™: S&P Paris-Aligned & Climate Transition Indices

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Mona Naqvi

Senior Director, Head of ESG Product Strategy, North America

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Ben Leale-Green

Analyst, Research & Design ESG Indices

The landmark Paris Agreement marked a sea change in the global fight against climate change. Backed by empirical evidence from the UN Intergovernmental Panel on Climate Change (IPCC), ambition has since grown to limit global temperature rise to 1.5°C since pre-industrial levels.

To date, climate-conscious investors have largely focused on reducing relative portfolio carbon exposure, but divergent methodologies have made fertile ground for so-called “greenwashing.” While point-in-time analyses do not necessarily inform alignment with our needed transition to a low-carbon economy. However, a combination of groundbreaking new datasets and index innovation is emerging. Investors now have the choice to align with a scenario that may mitigate the most catastrophic impacts. The European Union (EU) is in the process of finalizing standards for defining a ClimateTransition Benchmark (CTB) and a Paris-aligned Benchmark (PAB), both of which use absolute measures to align with a 1.5°C trajectory rather than simply a relative carbon reduction. Our S&P PACTTM: Paris-Aligned & Climate Transition Indices offer a powerful set of investment solutions to meet the proposed standards, in addition to other climate objectives. This new breed of sustainable climate indices therefore provides a pathway for investors to:

  1. Go beyond the Paris Agreement and align investments with a 1.5°C trajectory toward achieving net-zero emissions by 2050;
  2. Adopt a strategy compliant with the proposed standards for the EU CTBs and PABs and recommendations from the TCFD—accounting for the physical risks, transition risks, and opportunities arising from climate change; and
  3. Address numerous climate objectives efficiently, while staying as close to the underlying index as possible with broad, diversified exposure.

This paper underscores how the S&P PACT Indices could help investors transition to a 1.5°C world and achieve other climate objectives

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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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降低能源配置的潛在優勢:
標普高盛輕能源指數

標普道瓊斯指數提供多項追蹤各種大宗商品市場的策略,其中最受認可的是標普高盛大宗商品指數。該指數旨在衡量全球大宗商品市場中廣泛、以產量加權的可投資代表的表現。與能源有關的期貨佔指數成分的一半以上。

標普高盛輕能源指數可作為衡量能源佔比較低的大宗商品市場指標。該指數追踪與標普高盛大宗商品指數相同的指定合約,但其在能源行業的合約產量權重除以四,從而增加其他標普高盛大宗商品指數大宗商品成分股的相對權重。因此,該指數為五個主要大宗商品行業權重(能源、工業金屬、貴金屬、農業及畜牧業)提供更為均等的配置。

表1比較標普高盛輕能源指數與彭博大宗商品指數的編制方法。這兩個指數的大宗商品市場權重較為均等,其表現相似,且由於能源權重較低,因此兩個指數的波幅均低於標普高盛大宗商品指數。

降低能源配置的潛在優勢: 標普高盛輕能源指數 - 表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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