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IN THIS LIST

Analyzing High Dividend Yield Strategies in Australia

The Case for Indexing Thematics with the S&P Kensho New Economies

Why Does the S&P 500® Matter to the U.K.?

Comparing S&P Style & Pure Style Indices

Shooting the Messenger

 * Research - Feb 10, 2023


ANALYZING HIGH DIVIDEND YIELD STRATEGIES IN AUSTRALIA

Jason Ye

Director, Strategy Indices



Izzy Wang

Analyst, Strategy Indices



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 * Indices in This Article S&P/ASX 300

Introduction

Dividend indices are one of the most widely recognized factor-based strategies.
 According to Morningstar, as of Sept. 30, 2022, there were 411 dividend-focused
exchange-traded products (ETPs) worldwide, with over AUD 522 billion in AUM.
 Dividend ETPs had inflows of over AUD 97 billion in the first three quarters of
2022.  With over AUD 3.5 billion in AUM—or 40% of the Australian factor ETP
market—the dividend factor is one of the most popular in Australia.

In this paper, we will examine the Australian dividend market in depth and
analyze the historical performance of the Australian high dividend yield
strategy.

Australia Dividend Market

As one of the highest-yielding equity markets in the world, Australia has
attracted extensive attention from market participants.  As of Dec. 31, 2022,
the trailing 12-month dividend yield of the S&P/ASX 300 was 4.5%, the highest
among major developed markets (see Exhibit 1).  ETF assets tracking dividend
strategies in Australia have grown from AUD 571 million in 2012 to AUD 3,887
million as of Dec. 31, 2021, with an CAGR of 21% (see Exhibit 2).  In 2022, the
dividend AUM fell about 8% to AUD 3,585 million.





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Through the analysis of historical data, we have observed three major
characteristics in the Australian dividend market:

 1. A resilient dividend pool with a stable growth rate;
 2. The financials and the materials sectors contributed the majority of
    dividends; and
 3. A high level of dividend yield and payout ratio.



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 * Indices in This Article S&P/ASX 300

 * Research - Feb 02, 2023


THE CASE FOR INDEXING THEMATICS WITH THE S&P KENSHO NEW ECONOMIES

Tim Edwards

Managing Director and Global Head of Index Investment Strategy



Anu R. Ganti

Senior Director, Index Investment Strategy



Srineel Jalagani

Senior Director, Strategy Indices



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 * Indices in This Article S&P Kensho New Economies Composite Index

Offering an alternative to actively managed funds, index-based funds have played
an increasingly important role in financial markets globally, particularly in
the past two decades, in which 95% of all actively managed large-cap U.S. funds
lagged the S&P 500®.  As indexing has grown, many passive investors have
benefited substantially by saving on fees and avoiding active underperformance. 
Underperformance in the world’s largest equity market can be partly explained by
factors such as positive skewness of equity markets, the professionalization of
investment management and cost.





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However, the dynamics driving the relative performance of active funds in more
narrow or specific markets, including so-called “thematic” funds, are less well
understood.  In this paper, we show that similar principles apply to the
thematics space as well, along with some unique challenges, using the universe
of the S&P Kensho New Economies Composite Index to frame our analysis. 
Underscoring the challenges of active thematic stock selection in this universe,
and as Exhibit 1 illustrates, 63% of included constituents underperformed this
index over the past four years.





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 * Indices in This Article S&P Kensho New Economies Composite Index

 * Research - Jan 17, 2023


WHY DOES THE S&P 500® MATTER TO THE U.K.?

Tim Edwards

Managing Director and Global Head of Index Investment Strategy



Craig Lazzara

Managing Director, Index Investment Strategy



Sherifa Issifu

Senior Analyst, U.S. Equity Indices



Benedek Vörös

Director, Index Investment Strategy



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 * Indices in This Article S&P 500®S&P United Kingdom

Executive Summary

British equity funds tend to have less exposure to international equities than
would be commensurate with the scale of the global opportunity set.  A potential
under-allocation to U.S. equities, in particular, means that U.K. investors may
be foregoing a potentially useful diversification opportunity.  This paper
examines the S&P 500 from the perspective of a U.K.-based investor.  We examine:

-The concentration and sectoral makeup of the U.K. equity market, as well as the
motivations of U.K.-based market participants to diversify internationally;

-The role of the U.K. and the U.S. in the global economy and global equity
markets;

-Potentially complementary aspects of an S&P 500-linked investment for a
broad-based U.K. equity portfolio denominated in British pound sterling
(sterling); and

-The differences between the S&P 500 and other indices or active portfolios
tracking U.S. equities.

Although this paper provides a perspective on the S&P 500 through a specific
filter of an investor with an expected existing bias toward U.K. equities, many
of our observations hold more generally for international investors considering
U.S. equities.





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Introduction

Most market participants have encountered the S&P 500; it is a widely referenced
gauge of U.S. equity performance and a popular benchmark for investments.  The
S&P 500 contains many of the world’s largest and most recognizable companies,
with a global reach of operations, customers and revenue sources.  Further, as a
consequence of an increasing popularity and scale of S&P 500-related products,
including index funds, exchange-traded funds (ETFs) and listed derivatives such
as futures and options, the typical cost and barriers to entry for S&P
500-linked investments have fallen over time.

For a market participant predominantly investing in U.K. equities, U.S. stocks
arise in several investment contexts.  Most importantly, U.S. equities represent
a significant proportion of the global opportunity set for diversification, with
the S&P 500 making up 50% of the S&P Global BMI float-adjusted market
capitalization.  However, Exhibit 1 illustrates that investors in U.K. equity
funds have not yet taken full advantage of their diversification potential. 
Specifically, Exhibit 1 shows the estimated aggregate allocations within
U.K.-based equity funds to U.S. large,- mid- and small-cap equities, as compared
to the relative share of each segment in the S&P Global BMI.  As of September
2022, U.K. funds had a cumulative “underweight” of 22%.





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 * Indices in This Article S&P 500®S&P United Kingdom

 * Research - Jan 11, 2023


COMPARING S&P STYLE & PURE STYLE INDICES

Cristopher Anguiano

Senior Analyst, U.S. Equity Indices



Phillip Brzenk

Managing Director, Global Head of Multi-Asset Indices



Hamish Preston

Director, U.S. Equity Indices



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 * Indices in This Article S&P 500 GrowthS&P 500 ValueS&P 500 Pure GrowthS&P 500
   Pure Value

Executive Summary

S&P Dow Jones Indices (S&P DJI) offers style and pure style indices, which
categorize companies across the market cap spectrum based on their growth and
value characteristics. Both sets of indices provide perspectives on the
performance of value-oriented companies versus their growth-oriented
counterparts, as well as forming the basis for index-linked products and
benchmarks, globally.

However, the S&P Style and S&P Pure Style Indices are constructed differently,
and this has important effects on their characteristics and potential
applications. Updating earlier analysis, this paper:

-Explains the construction of the S&P Style and S&P Pure Style Indices;
-Compares the characteristics of both index series, including risk/return
profiles, exposures to style factors and the impact of different weighting
schemes; and
-Highlights the potential application of both sets of indices, including the
historical benefits of taking an indexed-based approach.

Exhibit 1 shows that, on average, the pure style indices outperformed their
style index counterparts in months when their respective style was in favor.







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Introduction

Launched in 1992, the S&P U.S. Style Indices are designed to provide broad
exposure to style segments across the market cap spectrum. The indices use
relevant fundamental ratios to divide the investment universe into growth and
value categories. Each style category accounts for around 50% of the underlying
index weight at the time of the annual reconstitution, and companies that
exhibit both growth and value characteristics have their market capitalization
distributed between growth and value.

Exhibit 2 shows that roughly one-third of each size segment possessed both
growth and value characteristics. For example, year-end data since 2009 shows
that an average of 165 securities in the S&P 500®, 131 securities in the S&P
MidCap 400® and 188 securities in the S&P SmallCap 600® fell into both the
growth and value indices.



The S&P U.S. Style Indices' exhaustive coverage may be relevant for investors
seeking broad style exposure, and the indices can help to define the broad
opportunity set for active managers looking to express style views. However, the
overlapping nature of the indices may not appeal to market participants that
desire more precise and focused measurement tools.

Launched in 2005, the S&P Pure Style indices offer narrower exposures to style
segments and they are more discerning when selecting growth- and value-oriented
companies. Indeed, the pure style indices only include the most growth- and
value-oriented companies, and there are no overlapping securities between the
pure growth and pure value baskets (see Exhibit 3).



Exhibit 4 summarizes the rules governing the style and pure style index series.
Both sets of indices use the same style descriptors—three for growth and three
for value—to measure style characteristics. The choice of these descriptors was
based on time series, cross-sectional and data coverage analyses on a range of
style descriptors found in peer-reviewed academic literature.

Exhibit 4 also highlights the methodological differences between the two index
series, including stock selection rules and weighting schemes. As we shall see
in forthcoming sections, these differences led style and pure style indices to
have distinct characteristics.





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   Pure Value

 * Research - Nov 22, 2022


SHOOTING THE MESSENGER

Anu R. Ganti

Senior Director, Index Investment Strategy



Craig Lazzara

Managing Director, Index Investment Strategy



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Executive Summary

Index funds, which hardly existed 50 years ago, now play a prominent role in
global financial markets.  Exhibit 1 illustrates the growth of assets tracking
the S&P 500®, the most prominent index in the world’s largest equity market, but
this trend has not been limited to the U.S. (nor to equities).



The growth of indexing has been driven by the inability of active managers, in
aggregate, to outperform passive benchmarks.  This is not a new development—it
was first reported 90 years ago.  The rise of passive management is the
consequence of active performance shortfalls.

These 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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Some Important Observations

Until the early 1970s, there were no index funds; all assets were managed
actively.  The subsequent shift of assets from active to passive management, as
illustrated in Exhibit 1, surely must count as one of the most important
developments in modern financial history.  Our intent in this paper is to
suggest why this transformation came about; the answer, in our view, lies both
in a set of observations and in the subsequent explanation of those
observations.

The observations to which we refer are designed to document the degree to which
active managers are able to add value to the performance of passive benchmarks. 
The earliest study of active management of which we’re aware dates to 1932. 
Alfred Cowles examined the stock selection records of both financial services
and fire insurance companies (what we would today call property and casualty
insurers).  Both sets of forecasters underperformed the average common stock
during the period Cowles examined.  The same was true of a number of financial
publications that made predictions of the overall level of the stock market. 
For all these cases, “statistical tests…failed to demonstrate that they
exhibited skill, and indicated that they more probably were [the] results of
chance.”



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