Direct Indexing: Customization, Transparency and Control

A New Approach to S&P Aristocrats: Meet the S&P Quality FCF Aristocrats Indices

The Market Measure: May 2025

Leveraging SPIVA Insights: A Practitioner's Guide

A Diversified Strategy for the 21st Century

Index TV - May 28, 2025

Direct Indexing: Customization, Transparency and Control

Length 5:54

Length 5:54

How can S&P DJI indices be used with direct indexing? Direct indexing is helping reshape the future of investing, enabling customized solutions that go beyond traditional passive strategies. With hundreds of thousands of our indices available for direct indexing, the possibility for customization is extensive.

[TRANSCRIPT]

Direct Indexing: Customization, Transparency and Control

Passive investing has transformed the way market participants access markets by offering transparency, cost efficiency and diversified exposure through passive vehicles like index funds and ETFs. Direct indexing provides a method to customize investment strategies to meet specific goals, such as tax-loss harvesting and capital gains management, while preserving transparency and diversification.

What is direct indexing?

Direct indexing allows market participants to directly own the individual securities of an index, instead of investing in a basket of securities through a mutual fund or ETF. By doing so, market participants gain flexibility in managing their compositions, which can lead to opportunities for personalization and efficiency. This approach could enable higher levels of customization, tax optimization and control.

The key benefits of direct indexing include the ability to customize holdings to specific investment objectives, whether that’s focusing on individual sectors or themes or aligning with sustainability goals; gain greater transparency, with full visibility into individual holdings and the ability to adjust exposures to meet unique needs; enhance after-tax returns with strategies like tax-loss harvesting, which may offset embedded taxable gains; and address concentrated stock positions with tax-neutral sell-downs.

How can S&P DJI indices be used with direct indexing? At S&P Dow Jones Indices, we provide the foundation for direct indexing solutions. Our trusted benchmarks span regions, sizes, styles and sectors, from the iconic S&P 500 to the S&P Composite 1500, as well as global and multi-asset class solutions. Our indices serve as reference points for investors or investment advisors to build their own customized portfolios. These indices are known globally for their reliability and precision.

Let’s explore some of the customization options available through direct indexing. Customization is at the heart of direct indexing, and with hundreds of thousands of our indices available for direct indexing, the possibility for customization is extensive. Using our indices as a baseline, investment managers can fine-tune exposures by screening or tilting based on factors like growth or value, themes such as emerging trends or sector-specific strategies, sustainability metrics, such as ESG considerations. Imagine an investor who is seeking exposure to the S&P 500 but wants to exclude certain sectors or tilt toward companies with higher research and development spending. With direct indexing, investment managers can achieve this seamlessly, building portfolios that align with their unique values and financial goals.

Taking a global approach. For managers with global mandates, the S&P Global BMI Index Series provides broad exposure across developed and emerging markets. This index family can be segmented by region, sector or style, allowing investment managers to meet the diverse needs of their clients. Whether targeting specific geographies, emphasizing growth markets or sustainability screens, the S&P Global BMI Index Series offers flexibility. For those with a particular focus on developed markets, investment managers can use the S&P World Index as their starting universe for the end user to achieve customized exposure. S&P DJI’s range of ADR indices may be used as the starting universe for those seeking global exposure through U.S. exchanges.

So why use S&P DJI indices in your direct index solutions? Backed by over 125 years of indexing leadership and expertise, S&P DJI is a preferred choice for wealth managers, asset managers and advisors seeking innovative solutions. With over $16 trillion in assets linked to our indices and more than 500 client-focused professionals worldwide, our benchmarks and analytics empower investment managers to create customized portfolios with confidence. As the world’s largest index provider, we deliver industry-leading indices that are trusted globally, advanced customization capabilities to help market participants align their investments with specific criteria, unmatched market expertise to navigate an evolving investment landscape, dedicated global support in over 70 countries to meet the needs of market participants around the world.

At S&P DJI, we are empowering investors through innovation. Direct indexing is helping reshape the future of investing, enabling customized solutions that go beyond traditional passive strategies. To learn more about how licensing S&P DJI indices for your platform may help elevate your direct index offerings for your end clients, visit us at the link below.

spglobal.com/spdji/en/landing/topic/direct-indexing

Index TV - May 26, 2025

A New Approach to S&P Aristocrats: Meet the S&P Quality FCF Aristocrats Indices

Length 3:36

Length 3:36

How does at least 10 consecutive years of free cash flow growth influence risk/return? Look inside the S&P Quality FCF Aristocrats Indices and see how a focus on consistent and efficient free cash flow generation has historically led to improved fundamentals, defensive characteristics and outperformance relative to the benchmark.

[TRANSCRIPT]

A New Approach to S&P Aristocrats: Meet the S&P Quality FCF Aristocrats Indices

S&P Dow Jones Indices Aristocrats™ brand is synonymous with quality and consistency. The S&P 500 Dividend Aristocrats, for example, focus on companies from The 500™ that have consistently increased dividends every year for the last 25 years or more. The end result is an index that includes quality dividend growers with strong financials that have continued through several macroeconomic environments.

Our latest Aristocrats index applies the same concepts of quality and consistency, but with a focus on consistent and efficient free cash flow generation instead of dividend growth. Meet the S&P Quality FCF Aristocrats Indices. These indices screen for companies that have generated at least 10 consecutive years of positive free cash flow. From there, they select companies with the highest FCF margin and FCF return on invested capital metrics.

Why is free cash flow so important? Like dividends, free cash flow can provide valuable insights into a company's financial health. It indicates the amount of cash available after the company meets its obligations. In short, free cash flow often helps provide financial flexibility. For example, companies with substantial FCF may increase shareholder value through strategic investments and acquisitions. FCF can also be used to increase shareholder yield through cash dividends, buybacks or paying down debt, actions that may make companies more resilient in fluctuating markets.

What are the potential benefits of the S&P Quality FCF Aristocrats Indices? S&P Quality FCF Aristocrats Indices concentrate on firms that prioritize consistent and efficient free cash flow generation. As a result, the indices tend to select high-quality companies, as evidenced by their historically improved fundamentals and defensive characteristics.

S&P Quality FCF Aristocrats Indices tend to tilt toward growth. Qualifying constituent companies can reinvest excess FCF into advertising, marketing or research and development. Hypothetical back-tested data shows that S&P Quality FCF Aristocrats Indices would have demonstrated long-term outperformance over their benchmarks historically on both risk-adjusted and absolute bases. And when compared to their benchmarks, back-tested data also shows that S&P Quality FCF Aristocrats Indices would have historically demonstrated strong quality metrics, diversification, lower volatility, drawdowns and downside capture versus the benchmark and upside capture that is in-line with the benchmark.

To learn more about the S&P 500 Quality FCF Aristocrats and the S&P Developed Quality FCF Aristocrats, visit us at the link below.

spglobal.com/spdji

Index TV - May 21, 2025

The Market Measure: May 2025

Length 9:20

Length 9:20

In this episode of The Market Measure, we explore whether the S&P 500's positive performance in 2025 may signal it's time to look at equities elsewhere. We’ll review recent U.S. and global market dynamics, highlight the long-term success of legends like Warren Buffett and the S&P 500 Dividend Aristocrats and examine the challenge of consistently outperforming the market. How many active funds do you think stayed above average over the past five years? Stay tuned to find out!

Meet The Market Measure - a new video series providing fresh perspectives on markets through the lens of indices. Each month, get access to insights across geographies, asset classes and investment strategies.

To make sure you never miss an episode, sign up for content alerts.

[TRANSCRIPT]

Ben Vörös:

Hello, my name is Ben Vörös,

Dasha Selivanova:

and I'm Dasha Selivanova.

The S&P 500 might now be in the green for 2025, but is it time to look at equities elsewhere?

Ben Vörös:

In the next few minutes, we'll review recent U.S. and world market dynamics, as well as offering a longer-term perspective on two outperforming legends, Warren Buffett and the Dividend Aristocrats.

Dasha Selivanova:

We'll also examine just how hard it is to outperform consistently. How many active funds do you think stayed above average over the last five years? To find out, stay tuned to this edition of

Ben Vörös, Dasha Selivanova:

The Market Measure.

Ben Vörös:

The S&P 500 had a turbulent start to the quarter as market participants assessed the impact of the Trump administration's tariff announcement after the market close on April 2nd. The U.S. bellwether, which averaged daily moves of just 1% in March, declined 10% over the following two sessions.

Then, following the announcement on April 9th of a 90-day tariff pause on all trading partners outside China, the S&P 500 saw a massive rebound with its 10% surge on the day of the announcement, the biggest gains since the early days of the Covid-19 pandemic in 2020.

Equities were given the further boost a month later when the U.S. and China agreed to a 90-day truce in their trade conflict. As of now, the S&P 500 clawed back all of its losses and some since the tariff announcement and is roughly flat year-to-date.

The early April selloff was one of the most volatile in recent market history. The VIX, already elevated near 30, ahead of the tariff news, increased into the mid-50s during several intense trading days. One-month realized volatility also spiked to its highest level since 2020. Volatility remained high heading into the 90-day tariff pause announced on April 9th, but then declined gradually and finally dipped below 20 on May 12th for the first time since March.

Dasha Selivanova:

In international equity markets, we saw a change in leadership as U.S. stocks, which vastly outperformed in the decade to 2024, have lagged major peers in both Q1 and Q2. This quarter, the S&P Latin America 40 grew by 8%, followed by the S&P World Ex-U.S. and the S&P Europe 350, which both increased by 6% versus a 4% gain for the S&P 500.

With the recent outperformance of stocks outside the U.S., some market participants have been asking whether it's time to reconsider U.S. equity exposure as its weight within the S&P World Index surpassed 70% last year. While we don't know what the future brings, underweighting U.S. equities’ largest stocks, or the largest sector, I.T., within the S&P World Index would have meant foregoing significant returns in the past couple of years.

To further illustrate the challenge of identifying outperforming segments in advance, take a look at this table showing the best-performing among the equity markets of the world's three most populous countries the U.S., India and China for each calendar year since 1998.

As you can see, the leadership among the three countries change frequently, with no country holding the lead for more than three consecutive years, which highlights a key lesson. Relying solely on one country's equity market may mean missing out on potential sources of return by maintaining exposure across multiple geographies. Investors may be able to mitigate country-specific risks and benefit from the power of diversification.

Ben Vörös:

Diversification may work not just across geographies, but also across sectors and factors. Let's take a look at the performance of S&P 500 sectors and factors, which saw changes of leadership in recent months. Some of the sectors that pulled down the S&P 500 in Q1 have emerged as leaders this quarter. I.T. and Consumer Discretionary, which were the two worst-performing sectors in Q1, turned into the two best performers in Q2, outperforming the S&P 500 by 6% and 4%, respectively.

Energy and Health Care Q1’s two top performers turned into the worst laggards in Q2, lagging the 500 by 14% and 11%, respectively.

Similar to sectors, most S&P 500 factors’ relative performance also reversed between this year's first and second quarters. Defensive factors have generally lagged in Q2, having outperformed in Q1. Momentum is among the minority of indices that outperform both in Q1 and Q2, while Low Volatility’s massive 12% outperformance in Q1 means that it remains an outperformer year to date, despite trailing the S&P 500 by 7% so far this quarter.

In times of high uncertainty, rapid changes in leadership often occur, and it pays not to underestimate the power of diversification, as a broad exposure across market segments and geographies may provide a smoother ride.

Dasha Selivanova:

SPIVA, which stands for S&P Indices versus Active, measures how active investment managers perform compared to their relevant benchmarks. The Persistence Scorecard extends this analysis by examining whether those actively managed funds that outperform do so consistently over time.

This is important because even in challenging years for active managers, some still beat the benchmark. The key question is did they outperform due to luck or genuine skill? Over time, skill tends to persist while luck fades. By analyzing above-median and top-quartile performance over three- and five-year intervals, we can see how many active managers stay consistently above median.

So what does the data tell us?

The freshly released Year-End 2024 U.S. Persistence Scorecard demonstrates that consistent outperformance, both relative to peers and versus the benchmark, is indeed typically hard to find. As the saying goes, past performance does not guarantee future results. Among top quartile large cap funds within all reported active domestic equity categories as of December 2020, not a single fund remained in the top quartile over the next four years.

The results are not much improved when lowering the bar from the top quartile to the top half. As this chart illustrates, the percentage of top half actively managed domestic equity funds consistently remaining in the top half over a five-year period was less than a random distribution would suggest, evidence that active outperformance when it occurs tends to be the result of luck rather than genuine skill.

For more results, check out the Year-End 2024 U.S. Persistence Scorecard, available on our website.

Ben Vörös:

In the beginning of May, the S&P 500 Dividend Aristocrats celebrated the 20th anniversary of its launch. The index tracks companies within the S&P 500 that have consistently raised their dividends for at least 25 consecutive years, indicating financial stability and disciplined growth.

Over the past two decades, the S&P 500 Dividend Aristocrats has maintained a strong dividend growth rate. As this chart shows, the index's dividend growth since inception at an annualized rate of 8.1% is more than three times the approximate 2.6% annualized inflation rate over the same period.

For a further 19 fun facts about the S&P 500 Dividend Aristocrats, visit S&P Dow Jones Indices’ website and check out the paper, titled, “Celebrating 20 Years of S&P 500 Dividend Aristocrats with 20 Fun Facts.”

In the beginning of the month, I had the privilege of attending the Berkshire Hathaway Annual General Meeting and witness history firsthand. Warren Buffett, legendary investor and long-time boss of Berkshire, announced his resignation as CEO, effective 31st December 2025, handing the reins to Greg Abel, his longtime lieutenant.

During Buffett's six decades at the helm, Berkshire Hathaway's returns have been spectacular as the conglomerate's shares soared over 6,000,000% between December 31st, 1964, and the beginning of May this year. The S&P 500 total return was approximately 38,000% over the same period.

Most of Berkshire’s outperformance came in the first half of Mr. Buffett's tenure. This chart shows that the annualized rolling 10-year outperformance of the Omaha-based conglomerate versus the S&P 500 has been on a steady downward trend over the decades. The Oracle of Omaha’s 10-year annualized offer averaged 16.6% between 1975 and 2000, versus 2.4% between 2000 and 2025.

Given its market capitalization of over $1 trillion, it would be an extraordinary feat if Berkshire delivered similar returns in the next 60 years as it did in the past 60. Nevertheless, Warren Buffett will no doubt get his place in the Mount Rushmore of history's best investors.

Dasha Selivanova:

At S&P Dow Jones Indices, we measure the markets.

Ben Vörös:

And this was The Market Measure.

Index TV - May 15, 2025

Leveraging SPIVA Insights: A Practitioner's Guide

Length 7:39

Length 7:39

How are financial advisors putting SPIVA data to work to help clients achieve their goals? S&P DJI’s Sue Lee joins Thriving Wealth’s John Cachia to dive into the most recent SPIVA Australia Scorecard and its practical applications for market participants.

[TRANSCRIPT]

Andrew Geoghan:

How are financial advisors putting SPIVA^® data to work to help clients achieve their goals? For more than 20 years, S&P Dow Jones Indices has published its SPIVA Scorecards that measure actively managed funds against their index benchmarks. SPIVA data regularly demonstrates that, over time, most active managers fail to beat the benchmark.

Hello, I'm Andrew Geoghegan from ausbiz, and joining us today to discuss key takeaways and practical applications of the latest SPIVA Australia Scorecard are Sue Lee, Head of Index Investment Strategy, APAC, at S&P Dow Jones Indices, and John Cachia, Founder and Strategic Wealth Advisor at Thriving Wealth. Sue and John, welcome.

Sue Lee, John Cachia:

Thanks very much. Thanks for having us.

Andrew Geoghan:

Sue, let me start with you. Can you just explain to us what the SPIVA Scorecard is and why it matters?

Sue Lee:

SPIVA stands for S&P Indices versus Active. So, basically, we look at the active funds available in different domiciles. In the case of Australia, we look at the funds available in Australia and look at their performance relative to benchmarks. So we look at the major categories. In the case of Australia, global equities and Australian large-cap equities and mid-small-cap equities and REITs and Australian bonds, five categories.

So we really deep dive the performance of active funds in different time horizons, and also we look at the market environment which contributed to the relative performance of active managers. And why does it matter? It actually tells you, the data will tell you, where active is working and where the passive might be a better alternative.

Andrew Geoghan:

So John, how important is this for you as a financial advisor, how you share the insights of the SPIVA Scorecard with your clients and how it helps them in terms of making those decisions on portfolio construction.

John Cachia:

Well, the report is really good because it really validates the way that we think at Thriving Wealth in regard to making data-driven decisions to achieve our clients' results. So, this report really kind of dives into why we go down that index-based approach.

And so, when you see some of the kind of data around active versus passive, it really demystifies some of the thoughts that some people have when they're working with a financial advisor, that we need to pick the winner all the time, where we should be actually trying to go and focus on the index-based investing, because that's the one that's giving the results.

Andrew Geoghan:

Now, in fact, the latest SPIVA Australia Scorecard has just been released, Sue. What are some of the most notable findings from that?

Sue Lee:

2024 was a very interesting year where we saw very different results across different asset classes. So, for example, global equity funds in Australia, they had the worst, among the worst years. 85% of the funds actually underperformed the S&P World Index, our developed equity benchmark. Domestic equity managers did relatively better. In the Australian Equity General Funds category, 56% underperformed the S&P/ASX 200. And the mid-small-cap fund managers did relatively even better, about 36% underperforming the S&P/ASX Mid-Small Index. On the other hand, Australian bond managers actually did very well, 70% of the fund managers actually outperforming the S&P/ASX Australian Fixed Interest 0+ Index.

But what's more interesting, especially, and then more important to the financial advisors, is the long-term outcome. So, every year you will see different numbers, but then when you look at the longer term, we see most of the funds, regardless of the asset classes and categories, underperform the benchmark.

Andrew Geoghan:

So John, how important is information like that to you, particularly in terms of communicating with your clients, and what sort of reaction do you get from them?

John Cachia:

It's really good because it helps with the education around how things are moving both for the short term and the long term, and how different decision-making has an impact on their results. So it's very good. Actually, when the latest report comes out, we send it out and communicate it to our clients and explain it to them as well too. So, we believe if they're better educated, they can make better decisions on a daily basis, and this tool, and with a lot of the stuff that S&P Global does, it does really keep our clients informed and obviously help us with achieving their goals.

Andrew Geoghan:

So, at the moment, a lot of market volatility, Sue. What are some of those trends you're seeing in the Australian market, I guess through that SPIVA lens, and the challenges faced by those active managers, and perhaps whether that carries through to other markets too covered by SPIVA.

Sue Lee:

Yes, if we look at the market environment in 2024, it remained largely similar to 2023. So in terms of dispersion, if you look at how stocks move differently from each other, the dispersion was actually quite wide, which means active managers actually had a decent opportunity to pick the ones that outperform the index or move differently, outperformers.

But what happened was a lot of these outperformers were actually the large-cap stocks. So if you think about what implications that has on active managers, a lot of active managers have portfolio weightings different from the benchmark and often do not have as high weightings in these large-cap names, and any active manager who employs such a strategy would not have done well in 2024 and 2023.

And another implication of the large-cap outperformance is the stock return distribution. So when the outperformers are actually these large-cap names, they actually have a significant impact on the index return. Hence, the rest of the stocks in the index actually underperform the index. So in the case of the S&P/ASX 200, 60% of the index constituents underperformed the index in 2024. And that number is even more striking in the U.S. 73% of the index constituents underperformed the S&P 500. So, when there are fewer names that can outperform an index, then active managers who are trying to find outperformers, they have harder times.

Andrew Geoghan:

Sue and John, thanks so much for your time today. Thank you.

And if you'd like to find out more about the latest SPIVA research findings, please visit the website at the link below. That's https://www.spglobal.com/spdji/en/spiva

Index TV - May 13, 2025

A Diversified Strategy for the 21st Century

Length 4:41

Length 4:41

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.

spglobal.com/spdji

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