S&P/TSX Geographic Revenue Exposure Indices: Where’s Your Exposure?

Exploring the S&P/TSX Capped REIT Income Index

Is Smart Beta Getting Smarter?

FAQ: S&P GSCI Capped Component

FA Talks: Main Management

S&P/TSX Geographic Revenue Exposure Indices: Where’s Your Exposure?

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John Welling

Director, Equity Indices

Our geographic revenue exposure indices target Canadian or U.S. markets by capturing the performance of S&P/TSX 60 companies with revenues that center on these countries. The top one-half of those companies with the highest proportion of revenues within the target region are selected for inclusion within the relevant index. Constituents are then weighted by float market cap times the revenue exposure score. By creating the S&P/TSX 60 Canada Revenue Exposure Index, we are able to increase exposure to Canadian-centered companies, delivering an index that is designed to provide comparably higher exposure to Canadian-based revenues. Likewise, the S&P/TSX 60 U.S. Revenue Exposure Index shifts focus toward companies with U.S.-centered revenues.

Sector weight and composition differences have contributed to performance differences within each index and include the following.  

  • The domestic revenue nature of Canadian banks tilts the financials sector weight away from the U.S., while Brookfield Asset Management somewhat offsets this due to the nature of its foreign- and U.S.-based revenues.
  • Telecommunication services companies (primarily BCE Inc.) generate a majority of their revenues domestically, favoring exposure to Canada.
  • Materials companies gain a higher proportion of revenues from within the U.S.
  • Exploration- and production-focused energy companies generate more revenues within Canada, whereas revenues from pipeline companies are skewed toward the U.S.
  • Notably, currency fluctuations, including CAD or USD strengthening or weakening, affect the value of Canadian exports when domestic companies earn revenues in foreign currencies and convert these back into Canadian dollars.

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Exploring the S&P/TSX Capped REIT Income Index

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Smita Chirputkar

Director, Global Research & Design


  • Canadian REITs have outperformed the equities and the bond markets over the past 20 years, with a similar risk level as that of equities.
  • There are potential diversification benefits of using REITs in a portfolio.

          o REITs have low correlation with equities and bonds.

          o REITs are another class of income-generating securities that tend to pay high dividends and have low correlation to other dividend-paying sectors like utilities and telecommunication services.

  • REIT securities can be further classified into eight subgroups that exhibit different risk/return profiles, as well as low-to-moderate correlations among each other, adding to the diversification benefits within a basket of REIT securities.
  • Canadian REITs have generated higher dividend yields than the broad-based domestic equity market over the past 17 years.
  • The S&P/TSX Capped REIT Income Index is designed to measure the performance of REIT companies in the S&P/TSX Composite while overweighting and underweighting companies based on their risk-adjusted income distribution yield.
  • The index is tilted in favor of securities with yields that have not fluctuated in the past 36 months.


REITs were created in the U.S. in 1960 to give market participants a new approach to income-producing real estate securities that combine the attributes of real estate and stock-based investments.  Over the past five decades, market participants around the globe have responded to this new asset class.  The total equity market capitalization of global equity REITs has grown 16-fold in the past 20 years, from CAD 0.11 trillion to CAD 1.8 trillion as of June 2017, as measured by the S&P Global REIT.

Due to the growth and distinct properties of real estate securities, S&P Dow Jones Indices and MSCI created a new sector classification—real estate—in August 2016.  Listed equity REITs and other real estate companies from the financials sector moved to the newly created real estate sector.

The Canadian REITs industry celebrated its 20th anniversary in 2013. Canadian REITs were born after the recessionary period in the late 1980s and early 1990s.  There were five REITs in the Canadian market as of late 1996.  From 1998 to 2000, when technology stocks were soaring, REITs were trading at a discount in Canada.  After the burst of the technology bubble, market participants were searching for companies that owned the hard assets, and REITs became a widely accepted vehicle, as they owned or managed the physical assets and satisfied the income needs of investors at that time.  The total market capitalization of Canadian REITs grew from CAD 16 billion in June 2005 to over CAD 56 billion as of June 2017, as measured by the S&P Canada REIT (see Exhibit 1). 

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Is Smart Beta Getting Smarter?

Paul Murdock, Indexology Magazine Editor, recently sat down with Vinit Srivastava, Managing Director, to trace the origins of smart beta indexing. From early days, before it even had a name, to recent developments in multi-factor indexing, Vinit shares his perspectives on each step of the journey and weighs in on where smart beta may be headed.

PAUL: What were the first factors tracked by indices?

VINIT: Before the recent wave of single- and multi-factor indices (over the last five to seven years), dividend, value, and equal-weight indices had already been widely adopted. These indices and the funds tracking them sought to provide exposure to yield, value, and size—all well-established factors that have been known to have a risk premium. One of the reasons for the success of these early strategies was their simplicity, both in their construction and their implementation. In fact, many of these factor strategies were adopted by active managers long before passive solutions were available.

PAUL: How has the factor index landscape evolved since then?

VINIT: Over the last decade, we’ve seen the creation of single-factor indices, which seek to provide exposure to well-known risk factors like low volatility, quality, size, momentum, value, and yield. These have allowed market participants to take views on factors and combine them strategically or tactically. As the market has evolved, multi-factor strategies that provide exposure to multiple risk factors in a single package have become more common.

One of the main drivers of this was asset owners’ need for costeffective strategies that meet their objectives in an era when long-term return expectations from most asset classes are lower than they have been historically. In this kind of environment, the right risk/return characteristics are essential to meeting long-term liabilities.

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FAQ: S&P GSCI Capped Component

  1. What is the S&P GSCI Capped Component? The S&P GSCI Capped Component caps the highest weight component at 35% and the rest at 20%.
  2. What is the capping frequency? Quarterly in January, April, July, and October.
  3. What is the determination date? One S&P GSCI business day before the first quarterly roll date.
  4. What is the implementation date? The first day of the roll.
  5. What are the components? There are 18 components, with three multiple commodity components containing more than one commodity based on their similarity.

The multiple commodity components are petroleum, wheat, and cattle. Exhibit 1 lists the components.

6. How are the capping rules implemented? The components are sorted from largest to smallest, using the initial commodity weights. Then, the 35% rule is applied to the largest components and the remaining weights are distributed equally among the remaining components. The weights are then reviewed, and if any other component violates the second capping rule, it is capped at 20%, holding the highest component weight static(at 35%), and then the remaining weight is proportionally distributed among the remaining commodities.This process is repeated until no additional component has a weight of greater than 20% 

7. How are the initial commodity weights derived? The latest S&P GSCI commodity Contract Production Weights (CPWs) are multiplied by each respective commodity price.

8. Does the capped component rule affect the roll schedule? No, the rolling schedule is independent of the capping model and follows its own methodology. 

For more information, please see the S&P GSCI Methodology and the S&P GSCI Capped Component Methodology Supplement.

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FA Talks: Main Management

Kim Arthur is a founding partner of Main Management, LLC.

He has served as Main’s CEO and as a Portfolio Manager since 2002.

Kim’s expertise has been cited in articles by Barron’s, Wall Street Journal, The New York Times,Business Week, Index Universe and Fortune Magazine among others. Kim has also been recognized by Institutional Investor Magazine as a “Rising Star” of Foundations and Endowments.

S&P DJI: Tell us a bit about Main Management and the clients you work with.

Kim: Main Management provides solutions to a wide range of institutional investors, high net worth advisors, investment advisors, and retirement plans.

We built this business 15 years ago with the goal of putting ourselves in the client’s shoes —the first way we were able to achieve this goal was to “have skin in the game,” so every partner has money invested with clients to make sure interests are fully aligned.

It’s also important to make the distinction that we are not a wealth manager, we are a money manager, which means we can be a partner with our clients, including financial advisors. With financial advisors in particular, we want to focus on their strengths, take part in their asset allocation, and deliver benchmark results in a costefficient manner. We understand that we aren’t immune to downturns in the market, so it’s important to communicate to clients why they are invested in specific strategies at different times.

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