The S&P GIVI (Global Intrinsic Value Index) Japan posted an impressive five-year live track record. It is one of the few multi-factor indices in the market, and it was launched five years ago. Since its launch in March 2012, the S&P GIVI Japan has outperformed its benchmark, the S&P Japan BMI, by 1.17% per year, with a tracking error of 2.42%. There has been a larger contribution from the low beta component (0.84%) than from the intrinsic value component (0.39%). The sequential combination of low beta and intrinsic value appears to have added value. In terms of risk-adjusted performance, the S&P GIVI Japan had a risk-adjusted return of 0.95, versus 0.82 for its benchmark, due to the reduction in volatility. The annualized alpha for the S&P GIVI Japan was 1.96%, with a beta of 0.93 against its benchmark.
Having gone through a major sell-off in the last quarter of 2016, Japanese equities, as measured by the S&P Japan BMI, increased 0.47% in the first quarter of 2017. This was backed by better-than-expected manufacturing and service PMIs; however, a strong Japanese yen remained a major challenge, along with sluggish GDP growth and stagnant inflation. A combination of ongoing economic improvements and higher expectations for profit growth led to a rebound for cyclically sensitive sectors in Japan, such as energy and materials.
The S&P GIVI Japan underperformed its benchmark index by 20 bps in the third quarter of 2016. In the first quarter of 2017, the intrinsic value leg and the low beta leg of the S&P GIVI Japan underperformed the benchmark. The three-year correlation between the excess return of the two legs continued to drop, reaching a low of -0.79.