In This List

Seeking Stable Income: The S&P 500® Quality High Dividend Index

FAQ: S&P Fair Value Indices

The Benchmark that Changed the World: Celebrating 20 Years of the Dow Jones Sustainability Indices

Indexing Listed Property Stocks in New Zealand

Sector Primer Series: Consumer Staples

Seeking Stable Income: The S&P 500® Quality High Dividend Index

Contributor Image
Tianyin Cheng

Senior Director, Strategy Indices

Contributor Image
Izzy Wang

Analyst, Strategy Indices

Amid 2019’s volatile market environment characterized by escalated trade disputes and fears of economic recession, many market participants started the year worrying about rising rates—only to see them decline.  In turbulent times, a focus on quality stocks with high dividend yields may present a compelling investment solution for market participants seeking stable income.

The S&P 500 Quality High Dividend Index seeks to provide just such a solution—it selects stocks that rank within the top 200 of the S&P 500 by quality score and dividend yield (see Exhibit 1).  This order-indifferent approach ensures extensive and balanced exposure to both quality and dividend yield.  Constituents are equally weighted and rebalanced semiannually.[1]

WHAT IS QUALITY?

S&P Dow Jones Indices defines quality as a combination of profit generation, earnings quality, and financial robustness (see Exhibit 2).  Together, these traits generally shield companies from the volatility of the economic cycle, making them slightly more immune to downturns.

Historically, high-quality stocks have delivered outperformance in the long run and provided downside protection during down markets (see Exhibits 3 and 4).

pdf-icon PD F DOWNLOAD FULL ARTICLE

FAQ: S&P Fair Value Indices

U.S.-registered mutual funds with global holdings can more precisely explain artificial tracking error between a benchmark index and fund net asset value (NAV) through use of the S&P Fair Value indices.

1. What are the S&P Fair Value Indices? The S&P Fair Value Indices incorporate adjustments to company share prices based on information available after the close of local exchanges. These fair value adjustments are calculated at the U.S. market close and are then used in the daily calculation of the S&P Fair Value Indices.

2. What are some key benefits of using the indices? U.S. mutual funds that hold foreign securities may have tracking error between benchmark indices and fund valuations, since NAVs include adjustments based on market movement outside of regular local trading hours. The S&P Fair Value Indices offer an explanation of this tracking error by incorporating these market movements into the underlying share prices of the index, and may act as a secondary benchmark for a given fund. As illustrated in Exhibit 1, period returns can vary widely between standard benchmarks and their fair value counterpart.

3. How are the fair value adjustments reflected in the indices? The indices are calculated using fair value adjustment factors applied on an individual basis to each stock in the index. The price for each stock is multiplied by the fair value adjustment for that stock to arrive at a fair value price measured as of the close of trading on the New York Stock Exchange using the 4:00 p.m. EST WM/Reuters exchange rate.

4. What is the source of the fair value adjustment factor? The factors are provided by Virtu Financial, Inc. a pricing service that calculates fair value adjustments. Virtu’s fair value pricing service was previously called ITG Fair Value Model.

5. Are any other changes made to the indices? The index uses the composition effective at the next day’s open (i.e., the adjusted close data). The index is then calculated in the same fashion as the underlying index.

6. What S&P Fair Value Indices are available? Exhibit 2 includes a sampling of our current S&P Fair Value IndicesS&P Dow Jones Indices can calculate fair value versions of any international equity benchmark based on client needs.

For a full list of available indices, please refer to the S&P Fair Value Indices Parameters document.

pdf-icon PD F DOWNLOAD FULL ARTICLE

The Benchmark that Changed the World: Celebrating 20 Years of the Dow Jones Sustainability Indices

Contributor Image
Mona Naqvi

Senior Director, Head of ESG Product Strategy, North America

INTRODUCTION

The year 1999 gave the world the euro, The Matrix, and the world’s first ever global sustainability benchmark—the Dow Jones Sustainability Index (DJSI).  The product of a landmark collaboration between S&P Dow Jones Indices and SAM1 (now RobecoSAM), the DJSI pioneered sustainable indexing and has shaped corporate sustainability practices ever since.2  To commemorate the 20th anniversary of the DJSI in 2019, we reflect on its origins, its impact on the market, and the possible future of the sustainable investing landscape.  Inclusion in the DJSI is seen as a badge of honor by sustainability champions around the world.  Perhaps no other benchmark has had as profound an impact on the behavior of companies, as they seek to secure a coveted spot in the world-renowned DJSI World each year.  Today, there are over 37,000 sustainable indices available worldwide,3 and with a 60% increase in the number between 2017 and 2018 alone, the industry is rapidly transforming.4  Amid this proliferation of environmental, social, and governance (ESG) benchmarking tools, the DJSI continues to make waves as the evolving global standard for benchmarking corporate sustainability performance, even two decades later.

1700s-1970s: THE ORIGINS OF RESPONSIBLE INVESTING

The notion of responsible investing is practically as old as investing itself. Records date back to the 18th century, when faith-based groups such as the Quakers and the Methodists provided guidance on “sinful” investments to avoid.  To this day, faith-based strategies like Shariah-compliant investing are offered within the broader sustainable investment framework.  However, the modern socially responsible investing (SRI) movement, as we know it, took off in the 1960s and 1970s, for example, with the boycott, divestment, and sanctions against South African companies during the era of apartheid.

Similar measures were adopted during the Vietnam War, culminating in the establishment of the first ethical investment vehicle, the Pax World Balanced Fund, in 1971.[1]  The mutual fund, which avoided investments in the supply chains of the controversial tactical herbicide Agent Orange, offered a channel for values-driven investors seeking to redirect their investments on the basis of pacifist moral principles.  Together, these movements paved the way for a generation of socially conscious investors seeking to affect social and political change, underscoring the ambition of “putting one’s money where one’s mouth is.”

By the 1980s, SRI had become fairly standardized in removing “sin stocks,” such as alcohol, tobacco, weapons, and nuclear energy, from investment portfolios.  Fundamentally about values, SRI is driven by the desire to align one’s investments with one’s beliefs.  But as modern portfolio theory suggests, excluding stocks from the opportunity set reduces potential returns.  While popular with values-driven investors, SRI thus did not gain widespread traction among mainstream investors and was left relegated to those willing to put their beliefs before their returns.  However, the idea that responsible companies are not only morally superior, but are also superior in terms of financial performance was slowly starting to surface.  In the early 1970s, the New York-based journalist Milton Moskowitz published lists of “responsible” and “irresponsible” companies, tracking their performance against the stock market.  In 1973, he wrote in the New York Times, “I do harbor the suspicion that socially insensitive management will eventually make enough mistakes to play havoc with the bottom line.”6  While his thinking underpinned many of the ideas behind corporate social responsibility (CSR), it would remain largely disconnected from the typical investment process until ESG investing later became widespread—in part, due to the launch of the DJSI.

pdf-icon PD F DOWNLOAD FULL ARTICLE

Indexing Listed Property Stocks in New Zealand

Contributor Image
Michael Orzano

Senior Director, Global Equity Indices

Publicly traded property stocks allow investors to gain exposure to real estate, an illiquid asset class, without sacrificing the liquidity benefits of listed equities.  Property stocks also typically offer higher yields than the broad equity market, may serve as an effective inflation hedge, and may help diversify a portfolio due to their generally low correlations to stocks and bonds.

S&P Dow Jones Indices and NZX Limited jointly launched the S&P/NZX Real Estate Select in November 2015 to serve as an investable benchmark for real estate companies listed on the NZX.  The index includes the largest, most liquid property companies included in the S&P/NZX All Index.  To reduce single stock concentration, the index employs a stock cap of 17.5%, applied semiannually.

Total returns of New Zealand equities, as measured by the S&P/NZX 50Index, and property stocks, as measured by the S&P/NZX Real Estate Select, were relatively similar over the longer term, while volatility was modestly lower for property stocks (see Exhibit 1).  This is somewhat surprising, given that global property stocks have historically had higher volatility than the broader global equity market.  As expected, investmentgrade bond returns were more modest, but were much less volatile than equities and property stocks.

pdf-icon PD F DOWNLOAD FULL ARTICLE

Sector Primer Series: Consumer Staples

Contributor Image
Louis Bellucci

Senior Director, Index Governance

INTRODUCTION

The Global Industry Classification Standard® (GICS®) assigns companies to business classifications, such as the Consumer Staples sector, according to their principal business activities. The sector is the first level of the fourtiered, hierarchical industry classification system that includes 11 sectors, 24 industry groups, 69 industries, and 158 sub-industries. The GICS assignment system uses quantitative and qualitative factors, including revenues, earnings, and market perception. GICS was developed in 1999 and is jointly managed by S&P Dow Jones Indices and MSCI.

The Consumer Staples sector comprises companies primarily engaged in:

  • Food and staples retailing and distribution, such as owners and operators of hypermarkets, super centers, and pharmacies;
  • Producing food, beverage, and tobacco products; and
  • Manufacturing household and personal products, such as detergents, soaps, diapers, cosmetics, and perfumes.

COMPOSITION

The S&P 500® Consumer Staples includes all companies in the S&P 500 that are assigned to the Consumer Staples 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 Consumer Staples sector is the seventh most heavily weighted of the 11 sectors within the S&P 500.  As of Dec. 31, 2018, the sector represented 7.41% of the S&P 500 (see Exhibit 2). 

There is a lower exposure to Consumer Staples in the mid- and small-cap indices, with the tenth-heaviest sector weight in the S&P MidCap 400® and eighth-heaviest in the S&P SmallCap 600®, at 2.94% and 3.58%, respectively.  Overall, in the S&P Total Market Index, which consists of over

3,800 stocks—including those in the S&P 500, S&P MidCap 400, S&P SmallCap 600, and micro caps—Consumer Staples was the seventh largest sector, with 136 securities and a weight of 6.64%.

Thirty-three companies, with a total float-adjusted market capitalization of USD 1,558.02 billion, comprised the S&P 500 Consumer Staples as of Dec.31, 2018.  The two largest companies in the sector were Procter & Gamble (PG) and Coca-Cola Co (KO), with float-adjusted market caps of USD 229.01 billion and USD 181.39 billion, translating to S&P 500 weights of 1.09% and 0.86%, respectively.  There were no Consumer Staples companies in the top 10 constituents of the S&P 500—Procter & Gamble ranked as the 14th largest.  The mean market cap of S&P 500 Consumer Staples stocks was USD 47.21 billion, the median market cap was USD 22.97 billion, and the minimum market cap was USD 2.96 billion.  The top 10 Consumer Staples holdings made up 73.78% of the sector.  Exhibit 4 shows that the Consumer Staples sector was the third most concentrated in its top 10 components among the 11 GICS sectors.

pdf-icon PD F DOWNLOAD FULL ARTICLE

Processing ...