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Shooting the Messenger

The growth of indexing has been driven by the inability of active managers, in aggregate, to outperform passive benchmarks—a phenomenon first reported 90 years ago. Active performance shortfalls can be attributed to three factors: the professionalization of investment management, cost and the skewness of stock returns. Since each of these factors is likely to persist, the advantage of indexing over active management is likely to persist as well.

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Assessing the Impact of 20 Years of SPIVA

S&P Indices vs. Active (SPIVA) Scorecards compare the short- and long-term performance of active funds to their benchmarks around the world. As this year marks the 20-year anniversary of the first SPIVA Scorecard, we take an in-depth look at why passive continues to outperform active over the long term, the most surprising results we've seen across fund categories and what all of this means for investors today.

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S&P 500 ESG Index: Defining the Sustainable Core

Broad-market exposure meets sustainability. The S&P 500 ESG Index is a market-cap-weighted index that is designed to measure the performance of securities meeting sustainability criteria, while maintaining similar overall industry group weights as the S&P 500. Intentionally broad—including over 300 of the original S&P 500 companies—the index seeks to reflect many of the attributes of the S&P 500 itself, while providing an improved sustainability profile.

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Index Construction Matters: The S&P SmallCap 600

Launched in 1994, the S&P 600 is designed to track the performance of small-cap U.S. equities and has outperformed the Russell 2000 by an average of 1.6% per year over the past 25 years. This outperformance highlights the importance of index construction. Unlike the Russell 2000, the S&P 600 uses an earnings screen—companies must have a track record of positive earnings before they are eligible to be added to the index. This quality factor exposure has played a significant role in explaining the S&P 600’s relative returns and its status as a harder benchmark for active managers to beat.

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Concentration within Sectors and Its Implication for Equal Weighting

Concerns about the degree of concentration in cap-weighted indices like the S&P 500 seem to arise whenever performance is dominated by mega caps. After peaks in concentration, the S&P 500 Equal Weight Index has typically outperformed its cap-weighted counterpart. In this paper, we propose an alternative way to measure concentration. By adjusting the Herfindahl-Hirschman Index to account for the number of names in a sector, we’re able to make meaningful cross-sector comparisons. We show that concentration tends to mean-revert in most sectors, which has important implications for the relative performance of equal weighting.

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SPIVA U.S. Mid-Year 2022 Scorecard

Declining markets make active management skills more valuable. In the first half of 2022, a significant minority of active managers were able to outperform their benchmarks in several categories. After suffering an 85% underperformance rate in 2021, just 51% of large-cap domestic equity funds lagged the S&P 500 in the first six months of 2022, putting actively managed large-cap U.S. equity funds on track for their best (i.e., lowest) underperformance rate since 2009. Find out if the same held true for mid-cap, small-cap, growth, value, international equity and fixed income funds, and see how the trends play out over longer time horizons.

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Defense Beyond Bonds: Defensive Strategy Indices

Market cycles are inevitable in investing, and investors are understandably wary of downturns in the equity market. While today’s interest rate trends may mean that bonds are a less appealing defensive asset than they have been historically, it is possible to position allocations defensively with factor-based equity indices. Combining well-chosen defensive factors with the S&P 500 and bonds has historically resulted in reduced volatility, as well as incremental returns.

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Inside the BBB Investment-Grade Credit Market

As the largest segment of the IG credit market, the BBB rated segment of the USD IG corporate bond market is becoming increasingly important to IG debt investors looking for incremental yield and risk exposure. Learn how the recently launched iBoxx USD Liquid Investment Grade BBB 0+ Index tracks this market, which:

  • has outperformed the broader IG market on a risk-adjusted return basis
  • may offer a pickup in yield
  • may help refine exposure and grant greater flexibility in positioning
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A Streamlined Approach to Multi-Asset with the S&P Target Risk Indices

Multi-asset strategies have caught the eye of market participants seeking pre-packaged solutions to diversification. Whereas many of these strategies are becoming increasingly complex—with black-box allocation algorithms, multiple signals, and 10 or more components—the S&P Target Risk Indices offer a more transparent approach.

Read on to explore:

  • Allocating between equity and fixed income according to risk appetite
  • The performance of conservative indices in past bear markets
  • The performance of aggressive indices over the long term
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The S&P 500 ESG Index: Defining the Sustainable Core

The launch of the S&P 500 ESG Index in April 2019 signaled an evolution in sustainable investing. The S&P 500 ESG Index was built to underlie strategic, long-term mainstream investment products. Intentionally broad, the index seeks to maintain similar overall industry group weights as the benchmark, while providing an improved sustainability profile.

This paper outlines the following index characteristics:

  • The easy-to-understand methodology behind the index
  • How "financial materiality" drives index construction
  • The historically similar risk-adjusted performance profile to the S&P 500
  • The improved ESG characteristics of the S&P 500 ESG Index over the S&P 500
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Harnessing Multi-Factor Strategies Close to the Core

Factors that outperform over time are also prone to extended periods of underperformance, which are difficult to time. For investors seeking exposure to factors but hoping to access greater diversification and reduced cyclicality, multi-factor strategies may be more suitable than single factors. Meet the S&P QVM Top 90% Indices, covering the U.S. large-cap, mid-cap, and small-cap universes, and combining quality, value, and momentum in a single strategy.


One Commodity Conundrum Despite 2nd Best April Ever

The Dow Jones Commodity Index and S&P GSCI total return indices gained 9.1% and 10.1%, respectively, in April. For the S&P GSCI, it was the best month in a year, and the second best April ever in history since 1970, only after last year’s April, when it gained 11.1%. Further, the S&P GSCI is up 15.5% since Feb 29, 2016, making this the first consecutive positive two months in two years, since Mar-Apr 2014, but marks the biggest consecutive two months in almost seven years since May-Jun 2009 when it gained 20.4%.

How Active Should Active Management Be?

Most active managers fail most of the time, at least if we take their underperformance of passive benchmarks as evidence of failure. The evidence of this failure is so widespread, and so consistent, that even dyed-in-the-wool active managers no longer deny it.

The Power of a Consensus Glide Path

Some who follow target date fund (TDF) performance have taken note that lately, the S&P Target Date Index Series has outperformed many TDFs. In most historical periods, index performance was middle of the pack. However, 2015 was an exception, as shown in Report 2 of our Year-End 2015 Target Date Scorecard. Every vintage of the S&P Target Date Index Series produced total returns that were close to, or better than, those of funds in the 90th percentile of the target date mutual fund universe.

Metals Don’t Reflect Chinese Demand Growth

After China reported year-over-year first-quarter growth that showed signs of improvement, it overpowered negative news of the Doha oil production meeting failure and sent commodities rallying. Investors’ attention quickly shifted from oil to the other economically sensitive sector, industrial metals.