Look inside the S&P 500 FC 7% Index, an innovative index that seeks to provide optimized exposure to the S&P 500 via BofA’s Fast Convergence technology by using intraday volatility signals to adjust component allocations to systematically increase stability and limit exposure to large drawdowns.
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S&P 500 FC 7% Index: The Gold Standard of Indices Meets Today’s Technology
What happens when innovative technology is applied to the iconic S&P 500®? The S&P 500 FC 7% VT TCA 0.50% Decrement Index (USD) ER, or S&P 500 FC 7% Index for short, seeks to provide optimized exposure to the S&P 500 using Fast Convergence technology, which was developed by and licensed from BofA Securities.
The S&P 500 FC 7% Index combines FC technology with the robust trading ecosystem based on the S&P 500, adjusting its exposure to the iconic index multiple times a day. Compared with volatility-controlled indices that use traditional end-of-day methodologies, the index’s intraday approach to rebalancing aims to provide more stability and limit exposure to large drawdowns.
So how does it work?
The S&P 500 FC 7% Index measures the S&P 500’s realized volatility throughout the trading day and targets annualized volatility of 7%. When volatility is above the target, the index reduces exposure to The 500®. When volatility is below the target, the index increases exposure to The 500, with a maximum leverage of 150%. This dynamic approach seeks to preserve the S&P 500’s growth potential while allowing it to de-risk and re-risk multiple times a day.
Back-tested data shows the S&P 500 7% FC Index has historically demonstrated a realized volatility close to its 7% target while outperforming an index using traditional end-of-day volatility targeting. By reacting faster to market moves, the index aims to systematically stabilize volatility while providing a foundation for S&P 500 index-based access to U.S. equities.
To learn more about the S&P 500 FC 7% Index, visit spglobal.com/spdji.
