The S&P GIVI Japan Posts Impressive Five-Year Live Track Record

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.[1]  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.


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