How are multi-asset indices with built-in adaptability and risk mitigation helping market participants? Meet the S&P Global Diversified 7.5% Index, a multi-asset index designed for today’s markets, reflecting diversification across regions and asset classes and incorporating dynamic signals to help mitigate market uncertainty.
[TRANSCRIPT]
A Diversified Strategy for the 21st Century
In recent years, indices have evolved from single-asset-class solutions to more sophisticated strategies designed to adapt to changing market conditions and enhance diversification benefits via multi-asset exposure.
The S&P Global Diversified 7.5% TCA 0.75% Decrement Index – or S&P Global Diversified 7.5% Index for short – is a multi-asset index designed for today’s markets, reflecting diversification across regions and asset classes and incorporating dynamic signals to help mitigate market uncertainty.
The index’s balanced construction consists of global equities, U.S. fixed income and gold. It dynamically reweights based on signals and uses a responsive volatility control mechanism as it seeks to maintain a target volatility of 7.5%. Back-tested analysis shows that this combination would have demonstrated stable growth over time, despite equity-bond correlation spikes amid periods of stress.
So how does the index work?
On a monthly basis, the index rebalances its components to their target weights of 50% global equities, 30% U.S. fixed income and 20% gold.
Throughout the month, the index takes a dynamic rebalancing approach that adjusts its weights daily to equities and fixed income, incorporating signals based on the performance of the S&P and U.S. economic indicators. As these asset classes tend to exhibit higher sensitivity to changing market conditions, this adjustment mechanism seeks to participate in potential upside while helping mitigate drawdowns. Finally, the index rebalances between these core components and cash to target a 7.5% volatility level. An annualized decrement of 0.75% is deducted daily and the component indices also include a transaction cost adjustment, or TCA.
The global equity component consists of a diverse mix of 30% U.S. large-cap, 30% U.S. technology, 20% European, and 20% Japanese equities, via both futures and ETFs. Using both momentum and volatility signals, the equity component can adjust its exposure between 0-100%. The component is included in the index because equities have historically exhibited strong potential upside.
The fixed income component consists of 10-Year U.S. Treasuries via futures. Using both yield momentum and adjusted forward-carry signals, the fixed income component can adjust its exposure between 0-100% to help navigate a changing interest rate environment. The fixed income component uses Treasuries as these are the bonds that investors often look to as a source of steady income.
The gold component achieves its exposure via an ETF and is included because the precious metal is widely regarded as a hedge against inflation, increasing the potential to stay ahead of rate cuts or dips in equities.
Compared to equity-only indices or static-weighted multi-asset strategies, the S&P Global Diversified 7.5% Index offers the potential for higher risk-adjusted returns due to its diversification across asset classes, use of market signals to help the index navigate changing markets and its volatility control overlay.
To learn more about how the S&P Global Diversified 7.5% Index seeks to provide diversification and dynamic multi-asset exposure in a single index and to get the latest performance data, visit us at the link below.
