In This List

TalkingPoints: The S&P 500® LinkUp Jobs Index

Volatility Test: Defensive Factor Indices versus Actively Managed Funds

Sector Primer Series: Financials

Indexology Magazine: Spring 2019

FAQ: S&P DJI ESG Index Series

TalkingPoints: The S&P 500® LinkUp Jobs Index

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Reid Steadman

Managing Director, Global Head of ESG

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

  1. 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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Volatility Test: Defensive Factor Indices versus Actively Managed Funds

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Berlinda Liu

Director, Global Research & Design

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Aye Soe

Managing Director, Global Head of Product Management

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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Sector Primer Series: Financials

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Louis Bellucci

Senior Director, Index Governance

INTRODUCTION

Developed in 1999 and jointly managed by S&P Dow Jones Indices and MSCI, the Global Industry Classification Standard® (GICS®) assigns companies to a single classification at the sub-industry level according to their principal business activity using 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 subindustries, as of Dec. 31, 2018.

The Financials sector comprises companies primarily engaged in Banking, Diversified Financials, and Insurance. The sector includes, but is not limited to: 

  • Companies that have conventional banking operations;
  • Financial institutions primarily engaged in investment banking and brokerage services;
  • Insurance and reinsurance brokerage firms;
  • Financial exchanges and providers of financial decision-making support tools and products, including ratings agencies; and
  • Companies with significantly diversified holdings across three or more sectors, none of which contribute a majority of profit and/or sales.

 

COMPOSITION

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 S&P 500 Financials Index comprises all companies included in the S&P 500 that are classified as members of the GICS Financials sector.

The Financials sector is the third most heavily weighted of the 11 sectors within the S&P 500.  As of Dec. 31, 2018, the Financials sector represented 13.31% of the S&P 500 (see Exhibit 2).  Since the index is market capitalization weighted, this sector has an above-average influence on the overall index performance.

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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.

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FAQ: S&P DJI ESG Index Series

COMPANY BACKGROUND

  1. Who is S&P Dow Jones Indices? S&P Dow Jones Indices (S&P DJI) is home to iconic financial market indicators, such as the S&P 500® and the Dow Jones Industrial Average®. The largest global resource for essential index-based market concepts, data, and research, it is a major investor resource to measure and trade the markets.

ESG at S&P DJI

S&P Dow Jones Indices has been a pioneer in environmental, social, and governance (ESG) indexing for 20 years, starting with the 1999 launch of the Dow Jones Sustainability World Index. Today, we offer an extensive range of indices to fit varying risk/return and ESG expectations, from core ESG and low-carbon climate approaches, to thematic and fixed income ESG strategies.

S&P Dow Jones Indices and SAM have a long history of collaboration, since joining forces to launch the world-renowned Dow Jones Sustainability World Index in 1999.

2. Who is SAM? SAM is a registered trademark of RobecoSAM, the Zurich-based asset management firm focused exclusively on sustainability investing since 1995. It offers in-house ESG-themed asset management, corporate sustainability assessment, and sustainability indices and benchmarking. The company was founded in 1995 and has been a partner of S&P Dow Jones Indices since 1999, when they worked together to launch the Dow Jones Sustainable Index (DJSI) Series.

S&P DJI ESG INDICES:

  1. What is the S&P ESG Index Series? The S&P ESG Index Series is a set of marketcapitalization-weighted indices, targeting securities that meet industry-specific sustainability criteria. The indices maintain similar overall industry group weights as their underlying indices to attain benchmark-like performance. ESG stands for environmental, social, and governance.
  2. Why was the S&P ESG Index Series created? The S&P ESG Index Series was launched to provide ESG-oriented and investable alternatives to leading market benchmarks, such as the S&P 500.
  3. What are the S&P DJI ESG Scores? S&P DJI ESG Scores are environmental, social, and governance scores that robustly measure ESG risk and performance factors for corporations, with a focus on financial materiality. The S&P DJI ESG Scores are used in the constituent selection process in the S&P ESG Index Series. They are a second set of ESG scores calculated by SAM, in addition to the SAM ESG Scores that are used to define the Dow Jones Sustainability Indices constituents.

The S&P DJI ESG Scores are the result of further scoring methodology refinements to the SAM ESG Scores that are the result of SAM’s annual Corporate Sustainability Assessment (CSA), a bottom-up research process that aggregates underlying company ESG data to score levels. The scores contain a total company-level ESG score for a financial year, comprising individual environmental (E), social (S), and governance (G) dimension scores, beneath which there are on average 21 industry-specific criteria scores that can be used as specific ESG signals (see Exhibit 1).1

A company’s total ESG score is the weighted average of all criteria scores and their respective weights. Each individual ESG dimension score (e.g., a company’s “E” score) is the weighted average of all criteria scores and weights within a specific ESG dimension. Total ESG scores range from 0-100, with 100 representing best performance.

For more information on the S&P DJI ESG Scores, please see the S&P DJI ESG Scores Frequently Asked Questions.

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