In This List

TalkingPoints: How to Engage ESG in More Meaningful Ways

InsuranceTalks: How Do Insurance Companies Use Fixed Income ETFs?

InvestorTalks: Using AI to Measure Market Mood with Indices

FAQ: S&P Solvency II Capital Efficiency Corporate Bond Index

360° of Climate – Indices for Every Objective

TalkingPoints: How to Engage ESG in More Meaningful Ways

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Mona Naqvi

Senior Director, Head of ESG Product Strategy, North America

The outperformance of funds that take environmental, social and governance (ESG) issues more seriously than their peers has reinforced why investors might want to integrate these factors into portfolios via the type of tools that S&P Dow Jones Indices has developed.

Encouraged by evidence of the materiality of ESG issues during the Covid-19 led volatility, there is greater appetite for sustainable themes in investor portfolios to align investments with one’s values and potentially generate higher risk-adjusted returns. At the same time, fuelled by greater transparency over how companies act and behave, and also spurred by trends in public opinion towards issues that matter to society as a whole, investors are seeking ways to leverage data and research to gain greater exposure to ESG factors.

Amid these trends, Mona Naqvi, Head of ESG Index Strategy for North America at S&P Dow Jones Indices (S&P DJI), spoke with AsianInvestor to explain the importance of financial materiality and other key ways to assess ESG, to help it be a core building block in portfolio construction.

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InsuranceTalks: How Do Insurance Companies Use Fixed Income ETFs?

With Eric Pollackov, Global Head of ETF Capital Markets, Invesco ETFs

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

Eric Pollackov is the Global Head of ETF Capital Markets for Invesco ETFs. In this role, Eric proactively develops relationships with sell-side trading desks, implements capital market strategies for Invesco's ETFs, and develops and measures the success of client interaction.

S&P DJI: Tell us a bit about your role at Invesco and how you serve insurers.

Eric: My role puts me at the center of the ETF ecosystem, where I interact daily with ETF trade desks, exchanges, portfolio managers, and various types of clients. Our team’s goal is to provide the most seamless and efficient execution experience when using any of Invesco’s 219 U.S.-listed ETFs.

With insurers increasingly turning to ETFs, my team and I work in partnership with the institutional insurance group to assist clients in understanding the ins and outs of ETF structure, liquidity, and trading. Whether they are buying ETFs for the first time or adding onto established positions, we provide the information clients need to successfully implement their investment views via Invesco’s vast array of ETF product offerings.

S&P DJI: In the past five years, we have seen ETF AUM in insurance general accounts double; as of year-end 2019, insurers held USD 31.2 billion in ETFs. What are some of the scenarios in which insurance companies may be utilizing ETFs, and why?

Eric: ETFs provide cost-efficient, convenient, and nimble access to core and non-core asset classes, yielding a number of potential applications for an insurer’s general account. One primary use case is for manager transitions. ETFs can help insurers maintain exposure to a given asset class or market, while the due diligence and implementation processes are completed on a separate account mandate. A second application is for tactical beta tilting. Tactical beta can take on many forms, but it is traditionally used to overweight or underweight specific risk factors, sectors, or asset classes to capture short-term investment opportunities. Also notable is the use of ETFs as a liquidity sleeve in the general account to complement individual securities or managers. Holding a small liquidity sleeve of ETFs may allow insurers to facilitate cash needs in a cost-efficient way by liquidating ETF shares to raise cash, rather than meddling with core positions in the portfolio.

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InvestorTalks: Using AI to Measure Market Mood with Indices

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

Indexing and artificial intelligence (AI) are democratizing access to institutional quality risk management. The S&P Riskcasting® Indices are designed to help keep risk in check, using AI to track signals of investor views on market risk and systematically adjusting allocations based on the signals received. S&P DJI joins Arnaud de Servigny to discuss how these innovative indices track the mood of the market to dynamically capture potential opportunities.

What's inside the S&P Riskcasting Index Series, and what is it designed to do?

S&P DJI: The index series is a rules-based, systematic multi-asset strategy that incorporates equity and fixed income. It uses a risk aversion signal to determine three different market states: bullish, neutral, or bearish. Based on the determined market state, the S&P Riskcasting Indices will allocate to different equity or fixed income indices. For example, the S&P 500® Riskcasting Index uses the S&P 500 and the S&P 10-Year Treasury Note Futures Index as its components, whereas the S&P 500 Low Volatility Riskcasting Index uses the S&P 500, S&P 500 Low Volatility Index, and S&P 10-Year Treasury Note Futures Index as its three components.

How does the risk aversion signal use S&P 500 options to measure the mood of the market?

Arnaud de Servigny: Generally, looking at risk in the finance industry, we tend to have backward-looking information on volatility and things like that. In a way, it is like looking in the rearview mirror while driving a car. What we want to do, however, is to look at what is going on right now or in the near future, and for this type of analysis we look at option markets. In the option markets, there are many different participants with many different views, and it is the diversity of these views that is interesting. If the overall market mood evolves in one direction or another, then this is something that is likely to have an impact on market performance, especially the equity market, which is what we want to capture.

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FAQ: S&P Solvency II Capital Efficiency Corporate Bond Index

The S&P Solvency II Capital Efficiency Corporate Bond Index seeks to track the performance of qualifying global corporate infrastructure bonds that meet the criteria under Solvency II.  The index utilizes an independent third-party assessment to determine eligibility for each security.

  1. What is Solvency II?  The Solvency II regime provides a framework for insurance providers in the European Union (EU).  This also applies to global insurance regulators that adhere to the Solvency II framework.  Like the Basel framework for banking institutions, it focuses on three pillars to assess capital requirements, set risk management procedures, and perform supervisory reporting for adherence to the regime.

  1. To receive preferential capital requirements, securities must qualify for capital relief.  What are the criteria for qualifying for capital relief?

    The primary requirements include the following.

    • The entity “provides or supports essential public services.”
    • More than 75% of its revenues come from infrastructure investing.
    • The level of output or the usage and price are contractually fixed.
    • The main payers are entities with an External Credit Assessment Institutions (ECAI) rating and a credit quality step of at least 3.
    • The investing entity should be able to hold the investment to its maturity.
    • There is diversification in terms of location.
    • A substantial majority of the revenues come from infrastructures located in the Organisation for Economic Co-operation and Development (OECD).

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360° of Climate – Indices for Every Objective

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Jaspreet Duhra

Senior Director and Head of EMEA Environmental, Social, and Governance (ESG) Indices

SUMMARY

  • There is a pressing need for the world to reduce its greenhouse gas emissions to decrease the risks and impacts of climate change. Responsible action is required by all stakeholders, including investors.
  • S&P DJI is at the forefront of innovative climate index design, leveraging the strength of climate datasets created by Trucost, part of S&P Global.
  • S&P DJI’s climate change index offerings cater to a broad range of investor climate objectives, from divestment, decarbonization, and de-risking to holistic, science-based 1.5°C

WHY CREATE CLIMATE CHANGE INDICES?

The Scientific Facts

The Intergovernmental Panel on Climate Change (IPCC) has stated that “Human activities are estimated to have caused approximately 1.0°C of global warming above pre-industrial levels.” While current global climate policies aim to reduce baseline emissions, temperatures are still projected to rise by 3.0°C by 2100. The IPCC suggests limiting global temperature rise to 1.5°C from pre-industrial levels.

Impacts on natural and human systems from global warming have already been observed.  Some impacts may be long lasting or irreversible, such as the loss of ecosystems.

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