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The S&P Europe 350 ESG Index: Defining Europe’s Sustainable Core

TalkingPoints: The Dow Jones Islamic Market Global Technology Titans 50 Index

FATalks: The Past, Present, and Future of ESG Strategies

TalkingPoints: Capturing the Growth of the Chinese Technology Industry

InstitutionalTalks: Why Multi-Factor Index Construction Matters

The S&P Europe 350 ESG Index: Defining Europe’s Sustainable Core

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Michael Orzano

Senior Director, Global Equity Indices

The S&P Europe 350 ESG Index is designed to meet the needs of today’s sustainability-minded investors.  Launched in 2019, this index was designed to represent the large-cap European market while offering an improved sustainability profile by excluding those companies that do not align with basic environmental, social, and governance (ESG) principles.  Further, this index is a potential solution for investment product providers seeking to adopt an index to meet the requirements of regulations, such the European Union Sustainable Finance Disclosure Regulation (SFDR).

Rather than focusing on one aspect of ESG, the S&P Europe 350 ESG Index provides insights into a wide variety of sustainability issues, such as governance, gender diversity, the environment, human rights, risk culture, cyber security, tax strategy, and many others.  The index integrates ESG scores made from 600 to 1,000 datapoints on individual issues at each company.

The S&P Europe 350 ESG Index is broad in its exposure, spanning the 11 GICS® sectors so that it is balanced in its sector composition like the underlying index, the S&P Europe 350.  This alignment is a powerful tool, ensuring that the S&P Europe 350 ESG Index faithfully represents the broad European market.

In this paper, we outline why the S&P Europe 350 ESG Index is a compelling choice for European investors and provide an overview of its methodology, sustainability attributes, and risk/return characteristics.

THE STARTING POINT: AN OVERVIEW OF THE S&P EUROPE 350

The first key to the S&P Europe 350 ESG Index is understanding the S&P Europe 350.  Introduced by S&P DJI in 1998, the S&P Europe 350 represents the European portion of the S&P Global 1200, which aggregates into one benchmark several other widely followed regional indices, including the S&P 500®, S&P/TSX 60, and other leading indices.

The S&P Europe 350 is a float-adjusted, market-capitalization-weighted index that includes the largest and most liquid stocks from developed Europe.  The index is managed in the same way as the S&P 500, in that the 350 companies are selected by the Index Committee according to a clearly defined and transparent set of rules.  Constituents are selected for the index based on size and liquidity, as well as on country and sector representation.  Like the S&P 500, the S&P Europe 350 does not simply include the largest 350 stocks in the region.  Rather, the index includes leading companies from each of the 11 GICS sectors across the 16 markets in the region.

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TalkingPoints: The Dow Jones Islamic Market Global Technology Titans 50 Index

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John Welling

Director, Global Equity Indices

Accessing the global technology sector in a Shariah-compliant way with the Dow Jones Islamic Market (DJIM) Global Technology Titans 50 Index.

1. What’s driving interest in the DJIM Global Technology Titans 50 Index now?

In recent years, the world’s largest global technology companies have become the dominant drivers of markets and the backbone of global economic growth. These innovative companies have changed the way we work, shop, travel, and communicate with others. At the same time, demand has increased for lower cost, index-based solutions to capture this important segment of the market in a Shariah-compliant manner. By measuring the largest global technology companies that pass Shariah screens, as defined by the world’s original global Islamic index series, the DJIM Global Technology Titans 50 Index meets this demand.

2. How does the index work?

The DJIM Global Technology Titans 50 Index is built from the same underlying framework as the DJIM World Index. Technology companies are identified using the Dow Jones Industry Classification System, which implements a broad, inclusive definition to capture the segment across industries. The top 50 companies are then selected by float market cap rank. This results in a representative set of globally recognized, liquid, blue-chip technology companies. The index components are selected and reweighted by float market cap on a quarterly basis.

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FATalks: The Past, Present, and Future of ESG Strategies

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

Glenn Ambach of Efficient Market Advisors (EMA) discusses why EMA was one of the first agencies to launch ESG versions of its strategies in 2018.

Efficient Market Advisors (EMA) is a pure ETF strategist firm dedicated to providing balanced asset allocation strategies using ETFs. EMA was founded in 2004, giving it one of the longest track records in the industry. In 2017, EMA was purchased by Cantor Fitzgerald and now operates as a business within the firm’s asset management unit, Cantor Fitzgerald Investment Advisors. The firm launched ESG versions of its strategies in 2018, making it one of the first agencies to do so.

S&P DJI: Why launch ESG strategies back in 2018 before they had more mainstream adoption?

Glenn: As an asset manager, one of the most appealing aspects of incorporating ESG is that it differentiates our firm as well as the advisors that utilize our strategies. It also presents the opportunity to be a leader both within the industry, as ESG is adopted more and more, and with clients who are increasingly demanding investment firms incorporate ESG considerations.

In terms of demand for ESG investing, we have seen a big shift toward incorporating ESG investing at the institutional level. We have also seen large inflows into ESG funds at the retail level. Historically at the retail level, demand was most often associated with women and millennials. For example, according to a 2017 report from the Morgan Stanley Institute for Sustainable Investing, 84% of women and 86% of millennials were interested in ESG investing. However, since launching our strategies, we have seen an increase in interest across all demographics, and I think ESG investing is something that appeals to a wider audience of investors. For example, we now have a nearly equal amount of women and men who choose our ESG strategies, with a distribution of clients across all age groups—in fact, most are over 40 years of age, indicating strong interest among older generations.

From a portfolio perspective, there has been growing evidence of the potential for the financial benefits of incorporating ESG analysis. Research has shown companies that score high in ESG factors had reduced costs, increased efficiency, lower risk of fines, and lower cost of capital, which may contribute to improved corporate financial and investment performance.

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TalkingPoints: Capturing the Growth of the Chinese Technology Industry

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John Welling

Director, Global Equity Indices

The S&P China Tech 50 Index highlights a unique and innovative set of high-tech companies across multiple sectors in the Chinese market.

1. Why was the S&P China Tech 50 Index introduced?

As China continues its transformation toward "new economy" sectors, technology plays an increasingly important role in the nation's economic and equity market composition. The S&P China Tech 50 Index is unique in that it is based on a transparent, well-established industry classification system (GICS®), and spans multiple industries in order to effectively capture the tech segment. Additionally, it prioritizes liquidity and capacity by limiting constituent count to 50 large, liquid companies.

2. How does the index work?

The S&P China Tech 50 Index uses a simple, rules-based process to select 50 of the largest and most liquid Chinese technology companies. The eligible universe includes all Chinese companies meeting minimum float-adjusted  market cap and liquidity thresholds that are accessible via Stock Connect or trade on a foreign exchange. All companies meeting these requirements and classified under the GICS groupings in Exhibit 1 are eligible for inclusion.

TalkingPoints: Capturing the Growth of the Chinese Technology Industry: Exhibit 1

The 50 largest companies (measured by total market cap) are selected and the index is weighted by float-adjusted market cap, subject to a 10% single stock cap. The index is rebalanced semiannually in March and September.

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InstitutionalTalks: Why Multi-Factor Index Construction Matters

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

Jeb Burns is the Chief Investment Officer of MERS of Michigan, where he directs the USD 15 billion investment program.

Julian Ramirez, CFA, is an Investment Officer and Portfolio Manager at MERS.

S&P DJI: Tell us a bit about your roles at MERS and the individuals you serve.

Jeb: The Municipal Employees’ Retirement System (MERS) of Michigan is an independent, professional retirement services company created to administer the retirement plans for Michigan’s local units of government on a not-for-profit basis. We manage various investment programs for over 900 municipalities throughout the state. We serve more than 100,000 participants, including local firefighters, nurses, and the men and women who plow our roads and keep our communities safe. Total assets for MERS as of June 30, 2021, were valued at USD 15.19 billion, with the defined benefit (DB) portfolio being the largest program, at USD 11.89 billion.

In my role as CIO, I am responsible for the investment management of the plan’s assets. This includes maintaining a successful investment team and culture, recommending and implementing the asset allocation for our investment programs, and regularly reporting to the board and investment committee on investment matters.

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