TalkingPoints: The S&P 500^® LinkUp Jobs Index

Volatility Test: Defensive Factor Indices versus Actively Managed Funds

FAQ: S&P/Drucker Institute Corporate Effectiveness Index

TalkingPoints: The Fourth Industrial Revolution - Are We Ready?

Indexology Magazine: Spring 2019

Education - May 29, 2019

TalkingPoints: The S&P 500^® LinkUp Jobs Index

The S&P 500^® LinkUp Jobs Index

To help investors better understand macroeconomic trends affecting U.S. and global markets, S&P Dow Jones Indices has partnered with LinkUp, a leading data-driven job search company, to create the S&P 500 LinkUp Jobs Index Series. The indices provides greater transparency into the hiring profiles of companies that are included in the S&P 500.

Headline

S&P 500 LinkUp Jobs Index

Sectors

S&P 500 LinkUp Jobs Energy Index
S&P 500 LinkUp Jobs Materials Index
S&P 500 LinkUp Jobs Industrials Index
S&P 500 LinkUp Jobs Consumer Discretionary Index
S&P 500 LinkUp Jobs Consumer Staples Index
S&P 500 LinkUp Jobs Health Care Index
S&P 500 LinkUp Jobs Financials Index
S&P 500 LinkUp Jobs Information Technology Index
S&P 500 LinkUp Jobs Communication Services Index
S&P 500 LinkUp Jobs Utilities Index
S&P 500 LinkUp Jobs Real Estate Index

Why do investors have an appetite for this type of index?

Reid: The S&P 500 LinkUp Jobs Index provides a unique view inside companies. The index helps investors understand whether companies are seeking to expand their labor forces and if so, at what rate. This type of data has always been of interest to investors: the U.S. Bureau of Labor Statistics’ (BLS) monthly report on payrolls is among the most-watched economic indicators by investors. As a jobs-focused measure, the S&P 500 Linkup Jobs Index fits in the same general category as the BLS report but is more forward looking, indicating what jobs will be filled as opposed to which jobs were filled. This new index is also timelier, updating weekly instead of monthly, and with just a single-week lag.

S&P DJI has long produced these types of measures, and they tend to be popular with investors. The best example is the S&P CoreLogic Case-Shiller Home Price Indices. This index series is second only to the S&P 500 in terms of the amount of traffic we receive on our website. The S&P 500 LinkUp Jobs Index will sit beside this renowned home price index series as an important economic indicator.

Toby: No other index provider measures jobs; thus, the S&P 500 LinkUp Jobs Index is the first and only to provide insights into the health of the global labor market. These indices deliver predictive signals around specific events such as layoffs, closures, product launches and discontinuations, divestitures, and store/facility openings, as well as other talent management indicators such as turnover.

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Education - May 28, 2019

Volatility Test: Defensive Factor Indices versus Actively Managed Funds

Indices based on factors such as low volatility and quality generally feature defensive characteristics. These strategies tend to outperform the broad benchmark in down markets, as previous studies have shown. However, some market participants also believe that active management fares somewhat better than the benchmark in periods of volatility and distress. In 2018, the S&P 500 ^® rallied 10.56% in the first three quarters and lost 13.52% in the fourth; this provides a good test to compare actively managed mutual funds against passive defensive factor strategies and see which rode the rollercoaster better. In our test, we also include the S&P 500 Equal Weight Index .

Different factors deliver different investment results, due to unique defensive mechanisms. In 2018, low volatility and dividends outperformed while quality lagged, compared with the median performance of all largecap mutual funds. Over the long term, when the cyclicality of the market had smoothed out, all these passive strategies tended to outperform the majority of actively managed mutual funds (see Exhibit 1).

In 2018, 64% of large-cap active funds underperformed the broad market, but even more managers underperformed the S&P 500 Low Volatility Index (88%) and the S&P 500 Dividend Aristocrats ^® (73%). Though quality has been considered a defensive factor, it did not perform as well as low volatility or dividends in 2018. Nearly 56% of active large-cap managers beat the S&P 500 Quality Index over the one-year period.

In the five-year period ending December 2018, the S&P 500 Low Volatility Index and S&P 500 Dividend Aristocrats outperformed over 85% of largecap active managers. In addition, over 66% of active large-cap funds had lower returns than the S&P 500 Equal Weight Index and the S&P 500 Quality Index.

Over the longer-term 15-year period, all four factor indices outperformed more than 98% of the large-cap mutual funds. This is not surprising; these defensive factor indices have tended to have higher hit rates and excess returns in down markets (see Exhibit 2).

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Education - May 08, 2019

FAQ: S&P/Drucker Institute Corporate Effectiveness Index

INDEX DESIGN

What is the S&P/Drucker Institute Corporate Effectiveness Index? The S&P/Drucker Institute Corporate Effectiveness Index is designed to track stocks in the S&P 500^® that consistently rank highly on proprietary management criteria. The best of these companies are published annually in a special section from the Wall Street Journal as the “Management Top 250.” These are companies that create value through excellence in employee engagement and development, customer satisfaction, social responsibility, innovation, and high-quality financial metrics, all of which may be leading indicators of both short- and long-term financial performance. Furthermore, companies that pursue success in one or two of these factors at the expense of the others may be taking on risk currently undervalued by the market. The S&P/Drucker Institute Corporate Effectiveness Index was thus constructed to identify companies that exhibit excellence and consistency in how they create and sustain value.

2. Why was the S&P/Drucker Institute Corporate Effectiveness Index created? While some investors obsess over short-term financial performance, they typically look right past crucial long-term factors that are difficult to measure—the reason these factors are often called “intangibles.” Yet a growing body of research shows that as much as 80% of a typical company’s value is driven by intangibles such as the strength of customer relationships, the engagement of the workforce, the ability to innovate, integrity in finances, and contributions to society. In collaboration with the Drucker Institute, S&P Dow Jones Indices created this index to give investors the whole picture: companies that effectively manage their intangibles with a holistic consistency that suggests they will continue to do so in the future.

3. What makes the S&P/Drucker Institute Corporate Effectiveness Index unique? The index combines two innovative measures—the Drucker Institute corporate effectiveness score and the S&P DJI quality score—into a single method that seeks to measure a company’s capacity for creating value while managing risk. The index uses an innovative construction that considers both financial and intangible management performance, and recognizes companies that stand out on the combined measure without resorting to a more risky unbalanced approach.

The objective of the S&P/Drucker Institute Corporate Effectiveness Index is to track firms that are managed effectively. This begins with the Drucker Institute’s rigorous and quantitative assessment of the managerial functions at the core of every enterprise: customer satisfaction, employee engagement and development, innovation, and social responsibility. Added to this is S&P DJI’s quality score as a recognized measure of financial strength. Together, these measures assess a firm’s ability to create, deliver, and sustain value for shareholders and stakeholders alike. Finally, in identifying companies that are not only effective on average but also well balanced, the index seeks a blend of short-term performance and long-term potential.

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Education - May 08, 2019

TalkingPoints: The Fourth Industrial Revolution - Are We Ready?

Thirty-eight percent of American workers may need to change occupations by 2030, according to PwC. That means about 45 million people already in the workforce might need to be retrained over the next 11 years. In the same vein, McKinsey Global Institute has estimated that approximately 50% of the activities people are paid to do, representing USD 16 trillion in costs to the global economy, can be automated using currently available technology.

Rapid developments in artificial intelligence (AI) and robotics—coupled with ubiquitous connectivity and vast, easily accessible processing power—are laying the groundwork for fundamental structural changes in the global economy. These mutually reinforcing catalysts are driving exponential innovation across a wide swathe of the economy, reshaping entire industries and creating new ones.

Interestingly, these catalysts are not new in and of themselves. For instance, the early work in modern-day artificial intelligence began in the 1950s, even though progress was limited given the lack of necessary processing power; and, of course, robots have been commonplace in manufacturing for well over 30 years. What’s prompting this new era is the compounding effect of developments in each of these areas. For instance, massively powerful and easily accessible computing power has greatly accelerated developments across AI, robotics, and the internet of things. Similarly, rapid developments in AI have greatly enhanced the capabilities of robotics, complex network management, and our ability to make sense of the vast amount of data captured by an increasingly connected world.

It is not purely technical advancements that are facilitating this revolution: a cultural shift towards a more open, sharing economy has also lowered the barriers to entry for many innovative startups. The open source community has evolved to include valuable intellectual property and sophisticated foundational components made freely available by large companies, such as Amazon, Google, and Facebook, for use by third parties. Couple that with on-demand services, such as effectively limitless computing power, and it’s easy to see how many traditional barriers to entry have been lowered across many industries.

We now stand on the cusp of this new era, the so-called Fourth Industrial Revolution. A term coined by Klaus Schwab of the World Economic Forum (WEF), it refers to this period of pervasive change in which the characteristics of man and machine begin to merge, whereby human capabilities are enhanced by genetic engineering and wearable and implantable technology, and machines acquire human characteristics, including cognitive capabilities. The WEF uses the term cyber-physical systems to describe the symbiosis of man and machine.

Some have argued that the innovation and change underway today is simply an extension of the Third Industrial Revolution, which heralded the introduction of computers and the digital era in the late 1960s/early 1970s.3 However, the Fourth Industrial Revolution represents a step change both in terms of the rate of change and the nature of it. The digital era is transitioning from one largely involving the automation of rote tasks to one that now includes the advanced cognitive capabilities typically associated with humans. The rate and breadth of change anticipated over the next decade is also unprecedented, resulting in what is likely to be a very different-looking world.

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Education - May 08, 2019

Indexology Magazine: Spring 2019

The Fourth Industrial Revolution: Are We Ready?

Thirty-eight percent of American workers may need to change occupations by 2030, according to PwC.¹ That means about 45 million people already in the workforce might need to be retrained over the next 11 years. In the same vein, McKinsey Global Institute has estimated that approximately 50% of the activities people are paid to do, representing USD 16 trillion in costs to the global economy, can be automated using currently available technology.²

Rapid developments in artificial intelligence (AI) and robotics— coupled with ubiquitous connectivity and vast, easily accessible processing power—are laying the groundwork for fundamental structural changes in the global economy. These mutually reinforcing catalysts are driving exponential innovation across a wide swathe of the economy, reshaping entire industries and creating new ones.

Interestingly, these catalysts are not new in and of themselves. For instance, the early work in modernday artificial intelligence began in the 1950s, even though progress was limited given the lack of necessary processing power; and, of course, robots have been commonplace in manufacturing for well over 30 years. What’s prompting this new era is the compounding effect of developments in each of these areas. For instance, massively powerful and easily accessible computing power has greatly accelerated developments across AI, robotics, and the internet of things. Similarly, rapid developments in AI have greatly enhanced the capabilities of robotics, complex network management, and our ability to make sense of the vast amount of data captured by an increasingly connected world.

It is not purely technical advancements that are facilitating this revolution: a cultural shift towards a more open, sharing economy has also lowered the barriers to entry for many innovative startups. The open source community has evolved to include valuable intellectual property and sophisticated foundational components made freely available by large companies, such as Amazon, Google, and Facebook, for use by third parties. Couple that with ondemand services, such as effectively limitless computing power, and it’s easy to see how many traditional barriers to entry have been lowered across many industries.

Download Full Article

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