In This List

How Smart Beta Strategies Work in the Australian Market

ETFs in Insurance General Accounts – 2020

ETFs en las Inversiones de Compañías de Seguros – 2020

ETFs nos Investimentos das Companhias de Seguros - 2020

The S&P Composite 1500®: An Efficient Measure of the U.S. Equity Market

How Smart Beta Strategies Work in the Australian Market

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Priscilla Luk

Managing Director, Global Research & Design, APAC

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Liyu Zeng

Director, Global Research & Design


With increasing interest in smart beta strategies in the Australian equity market, we examined the effectiveness of six well-known risk factors, size, value, low volatility, momentum, quality, and dividends, in the Australian equity market from Dec. 31, 2004, to May 29, 2020.

  • Quintile analysis showed that low volatility, high momentum, and high quality delivered the most persistent absolute and risk-adjusted return spreads, but small cap and value did not generate incremental return in the Australian market.
  • Among the Australian factor indices offered by S&P Dow Jones Indices (S&P DJI), the quality and momentum indices delivered the highest excess returns, while the low volatility and dividend indices had lower volatility than the S&P/ASX 200.
  • Our macro regime analysis showed that most factor portfolios in Australia were sensitive to local market cycles and investor sentiment regimes.
  • The distinct cyclicality of factor performance in Australia indicated its potential for implementation of active views on the local equity market.


Smart beta strategies have gained significant attention in the asset management industry, and the exchange-traded products (ETPs) tracking factor indices have experienced significant asset growth since the end of 2008. Factor-based strategies are a category of smart beta strategies that target specific risk factors.  They share some common characteristics with passive investing, such as rules-based construction, transparency, and cost-efficiency, and they also share features of active investing in that they aim to enhance return and reduce risk compared to market-cap-weighted indices.

Single-factor indices are constructed explicitly to capture a specific risk factor and exhibit distinct cyclicality in response to a changing market environment, which also makes them ideal tools for implementation of active views. 

In Australia, although the adoption of factor-based investing by local market participants is behind the U.S. and some Asian markets (like Japan), the growth of factor-based ETPs has accelerated in recent years, achieving 46% growth in net assets in the past 18 months in local currency terms as of Dec. 31, 2018, and accounting for 10.5% of the Australian ETF market. Dividend products still dominate the Australian factor-based ETP market, but we observed the proliferation in categories and the increasing demand for factor-based index-linked products within the Australian equity market.

Based on the performance contribution analysis for the S&P/ASX 200 portfolio, the Financials and Materials sectors contributed about 63.6% of the total performance of the portfolio for more than 15 years.  At a stock level, the top five large-cap contributors (BHP Group Ltd, Commonwealth Bank of Australia, Westpac Banking Corporation, CSL Limited, and Australia and New Zealand Banking Group Limited) together contributed approximately 49% of the total portfolio performance over the same period.  This suggests that sector or size bias might have  a significant impact on the excess return of factor portfolios in the Australian market.

In this paper, we examined the effectiveness of six well-known risk factors (size, value, low volatility, momentum, quality, and dividend) in the Australian equity market and the behavior of these factors under different market regimes.


ETFs in Insurance General Accounts – 2020

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Raghu Ramachandran

Head of Insurance Asset Channel


In our first report in 2015, we used historical trends to project that insurance companies would double their use of exchange-traded funds (ETFs) in five years. Now five years later, usage of ETFs in insurance general accounts has indeed doubled since 2015. In the one-year period ending Dec. 31, 2019, insurance companies increased their ETF assets under management (AUM) by 16% to reach USD 31.2 billion. We saw companies increase their use of Equity and Fixed Income ETFs. While the overall use of ETFs increased, we did observe some parts of the industry that had been active in using ETFs pull away. Although the use of Fixed Income ETFs increased, the use of Systematic Valuation (SV) declined.


As of year-end 2019, U.S. insurance companies had USD 31.2 billion invested in ETFs. This represents a tiny fraction of the USD 4.4 trillion of ETF AUM and an even smaller portion of the USD 6.7 trillion in admitted assets of U.S. insurance companies. Exhibit 1 shows the use of ETFs by U.S. insurance companies over the past 16 years.


ETFs en las Inversiones de Compañías de Seguros – 2020


En nuestro primer informe de 2015, utilizamos tendencias históricas para proyectar que las compañías de seguros duplicarían su uso de ETFs en los cinco años siguientes. Cinco años más tarde, el uso de estos fondos en las inversiones de aseguradoras efectivamente se duplicó desde 2015. En el período de un año finalizado el 31 de diciembre de 2019, las compañías de seguros aumentaron sus activos en administración (AUM) de ETFs en 16%, llegando a US$ 31.2 mil millones. Observamos un alza en el uso de ETFs de renta variable y renta fija. Si bien el uso general de ETFs aumentó, algunas partes de la industria que habían sido activas en el uso de estos fondos se alejaron. Aunque el uso de ETFs de renta fija se incrementó, el uso de valuación sistemática (VS) disminuyó.


Al cierre de 2019, las compañías de seguros de EE. UU. habían invertido US$ 31.2 mil millones en ETFs. Esto representa una pequeña fracción de los US$ 4.4 billones en AUM de ETFs y una parte todavía más pequeña de los US$ 6.7 billones en activos admitidos de las aseguradoras de EE. UU. La figura 1 muestra el uso de ETFs por parte de compañías de seguros estadounidenses durante los últimos dieciséis años.


ETFs nos Investimentos das Companhias de Seguros - 2020


No nosso primeiro relatório em 2015, utilizamos tendências históricas para projetar que, em cinco anos, as seguradoras duplicariam o seu uso de ETFs. Hoje, cinco anos depois, o uso de ETFs nos investimentos das companhias de seguros é, de fato, o dobro comparado com 2015. No período de um ano encerrado em 31 de dezembro de 2019, as seguradoras aumentaram 16% os ativos sob administração (AUM) em ETFs até atingir US$ 31,2 bilhões. As companhias incrementaram o uso de ETFs de renda variável e renda fixa. Embora o uso geral de ETFs tenha subido, algumas partes da indústria que tinham sido ativas no uso destes instrumentos se afastaram. Mesmo que o uso de ETFs de renda fixa tenha crescido, o uso da valorização sistemática (VS) caiu.


No final de 2019, as seguradoras americanas tinham US$ 31,2 bilhões investidos em ETFs. Esta cifra representa uma pequena fração dos US$ 4,4 trilhões de AUM em ETFs e uma porção ainda menor dos US$ 6,7 trilhões em ativos líquidos destas companhias. O quadro 1 mostra o uso de ETFs por parte das seguradoras americanas durante os últimos 16 anos.


The S&P Composite 1500®: An Efficient Measure of the U.S. Equity Market

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Hamish Preston

Associate Director, U.S. Equity Indices

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Phillip Brzenk

Senior Director, Strategy Indices

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Aye Soe

Managing Director, Global Head of Product Management


Launched in 1995, the S&P Composite 1500 (hereafter the "S&P 1500") serves as a benchmark indicator for U.S. equity market performance, aggregating price movements of S&P 500®, S&P MidCap 400®, and S&P SmallCap 600.

The S&P 1500 also increasingly serves as a basis for constructing portfolios designed to deliver a "market" return at lower cost than those active managers who offer to beat it. We shall examine the S&P 1500 from both perspectives, as well as examining its merits in comparison to popular alternatives. In particular, we observe that:

  • The sizeable representation of U.S. companies means tracking U.S. equity market performance may be relevant to investors, globally;
  • The S&P 1500 has outperformed the S&P 500, historically;
  • Incorporating smaller companies in a U.S. market benchmark provides a more holistic view of the U.S. economy (see Exhibit 7); and
  • Compared with other U.S. equity market indices, the S&P 1500 avoids relatively illiquid, lower priced, and lower quality stocks (see Exhibit 1).


U.S. companies represented an average of 49.47% of the S&P Global BMI’s capitalization at each year-end between 1995 and 2019, more than five times the average weight of second-place Japan (9.39%). Given that U.S. companies also accounted for over 50% of the market capitalization in most global industries at the end of 2019, many investors may need to turn to the U.S. in order to obtain certain exposures.

The S&P 1500 is designed for investors seeking to replicate the performance of the U.S. equity market, or benchmark against a representative universe of tradable stocks. The S&P 1500 combines three widely followed indices—the S&P 500, S&P MidCap 400, and S&P SmallCap 600—in proportion to their free-float market capitalizations. Hence, the S&P 1500 uses the same inclusion criteria as its three component indices.


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