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The S&P BSE 500: How Has it Performed?

The Biggest Bull Didn't Win

Strong Returns Over 32+ Years for BXMD Index That Writes OTM SPX Options

“Counter-cyclical” adjustment factor resumed to anchor Chinese currency

Relative Performance Impacts From the Introduction of Communication Services

The S&P BSE 500: How Has it Performed?

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Mahavir Kaswa

Former Associate Director, Product Management

S&P BSE Indices

As highlighted in a prior post, “Getting to Know the S&P BSE 500,” the S&P BSE 500 is considered a proxy for India’s listed equity market, as it covers more than 88% of India’s listed equity universe in terms of total market capitalization. The index also offers diversified exposure to all key sectors of India’s economy and all size segments. In this post, we will review the historical performance of the S&P BSE 500.

As shown in Exhibit 1, from Aug. 1, 2006, to April 30, 2018, the S&P BSE 500 posted an annualized total return of 13.4%, outperforming the S&P BSE 100 and S&P BSE 250 SmallCap Index, while lagging the S&P BSE 150 MidCap Index. The S&P BSE 500 exhibited volatility that was close to the S&P BSE 100’s volatility—not surprising given that S&P BSE 100 constituents account for approximately 79% of the total index weight (see Exhibit 1).

Exhibit 2 shows rolling absolute returns for three-year horizons (750 trading days). All indices compared here performed similarly for most of the period, showing relatively higher correlations with each other. Historically, the S&P BSE 500 and S&P BSE 100 exhibited relatively lower probabilities of negative returns over the three-year investment horizon.

As illustrated in Exhibit 3, out of the total 2,192 trading days observed from Aug 1, 2006, to April 30, 2018, the S&P BSE 500 noted only 113 trading days with returns less than 0%. The relatively more volatile S&P BSE SmallCap 250 Index noted the greatest (452) number of days with negative returns, while the S&P BSE 100, which represents large caps, noted the fewest (52) number of days with negative returns.

The posts on this blog are opinions, not advice. Please read our Disclaimers.

The Biggest Bull Didn't Win

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Jodie Gunzberg

Former Managing Director, Head of U.S. Equities

S&P Dow Jones Indices

The big news in August was that the aging Bull market (since March 9, 2009) became the longest-running Bull market in S&P 500 history, as it posted an annualized 16.6% equity return and 19.1% with dividends, as my colleague, Howard Silverblatt pointed out.  While the record-breaking Bull market for the S&P 500 is spectacular, mid-caps and small caps did even better.  The S&P MidCap 400 posted an annualized 18.6% equity return and 20.5% with dividends, and the S&P SmallCap 600 posted an annualized 20.9% equity return and 22.4% with dividends.

Source: S&P Dow Jones Indices. Daily data from Mar. 9, 2009 through Aug. 31, 2018.

Though large caps outperformed by the most in 2017 since 1999, small caps have made a stellar comeback, nearly doubling the large cap performance year-to-date ending Aug. 31, 2018.  The S&P 600 (TR) is up 18.3% ytd, as compared with 9.9% for the S&P 500 (TR) and 8.7% for the S&P 400 (TR).  The small cap outperformance was widened in Aug. with a monthly return of 4.8% versus 3.3% for large caps and 3.2% for mid-caps.  It was the sixth straight positive month for small-caps delivering a total return of 20.0% over the period in the strongest run since the six months ending Mar. 2012, when the index gained of 31.2%.

Source: S&P Dow Jones Indices. Only total returns of gains from six consecutively positive months are shown.

While all eleven sectors are positive year-to-date for mid and small caps, some of the small cap sectors are having near record years. For example, industrials, the biggest sector in the S&P 600, is having its best year since 1997, up 17.5% ytd, and its third best on record.  The smaller companies of this sector may be more insulated from U.S.-China trade tensions and also has less revenues coming from overseas so has outperformed the large-cap industrials.  Also, heath care in small caps is having its second best year on record, up 47.4%, the best ytd performance since 2000.  That is also driving the S&P 600 Growth (TR) that has nearly 20% in health care to have its second best ytd performance on record, up 23.5% – the most since 2003.  On the other hand, small cap-energy lost more in Aug. than large caps in energy from supply disruptions that drove oil price volatility.

Source: S&P Dow Jones Indices

In Sept., please be reminded of the implementation of the expansion of the telecommunication services sector into the communication services sector according to Global Industry Classification Standard (GICS.)  For more information, please visit our website.



The posts on this blog are opinions, not advice. Please read our Disclaimers.

Strong Returns Over 32+ Years for BXMD Index That Writes OTM SPX Options

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Matt Moran

Head of Index Insights

Cboe Global Markets

In recent years at many investment conferences I heard that many public pension plans face underfunding challenges, and they are very interested in investments with strong returns and moderate risk. While past performance is not a guarantee of future results, the Cboe S&P 500 30-Delta BuyWrite Index (BXMDSM) has shown higher returns and lower volatility than the S&P 500®, MSCI EAFE®, and S&P GSCI indexes in the period from its inception in mid-1986 through July 2018.


Note in the line chart below that since mid-1986 the BXMD index (which writes out-of-the money (OTM) SPX options) (a) rose 2527%, and (b) generally had bigger upside moves during bull markets than the Cboe S&P 500 BuyWrite Index (BXMSM), (which writes at-the-money (ATM) SPX options).


The BXMD Index is designed to track the performance of a hypothetical covered call strategy that holds a long position indexed to the S&P 500 Index and sells a monthly out-of-the-money (OTM) S&P 500 Index (SPXSM) call option. The call option written is the strike nearest to the 30-Delta SPX call option at 10:00 a.m. CT on the Roll Date.


As shown in the two bar charts below, the BXMD Index had the highest annualized returns of the nine indexes shown, and the BXMD also had lower volatility than the S&P 500 and S&P GSCI indexes.


The histogram with the S&P 500 and BXMD indexes shows that the S&P 500 had 13 months with declines of worse than 8 percent, while the BXMD Index had 9 such months. Certain index options strategies can be used to help manage left tail risk.


In the Returns and Volatility chart, the BXMD Index had the highest returns of all 11 indexes, and had lower volatility than the stock and commodity indexes.


In the table below with metrics for 12 benchmark indexes:

HIGHEST RETURNS. The BXMD Index had the highest annualized returns;

HIGHER BETA. When compared to the market (the S&P 500), the BXMD Index had a beta of 0.82 and an r-squared of 90.55%; both of these numbers are higher than for most of the other option-based benchmark indexes. A strategy that writes OTM index options has the potential to more closely track its related stock index when compared to a strategy that writes ATM index options. The OTM option writing usually takes in lower premiums than the ATM index option writing strategy, but the OTM strategy can participate in the upside moves in bull markets. The BXMD Index is not designed for diversification and portfolio risk reduction goals.

HIGH RISK-ADJUSTED RETURNS. In the table below, the three indexes with the highest Sharpe Ratios were the Cboe S&P 500 Putwrite Index (PUTSM) (0.687); Cboe S&P 500 Covered Combo Index (CMBOSM) (0.591) and the BXMD Index (0.586). The Sharpe Ratio is one of the most popular metrics for risk-adjusted returns, but a key caveat in use of the Sharpe Ratio is that it works best when comparing investments with normal distributions of returns, but most of the indexes in the table below have non-normal distributions of returns with negative skewness. The skewness over the period of 32+ years was negative 2.14 for the PUT Index, negative 1.11 for the BXMD Index, and negative 0.81 for the S&P 500 Index.


An inquisitive investor might ask – how could the BXMD have higher returns, lower volatility, and higher risk-adjusted returns than several key “traditional” indexes over several decades? One possible explanation for the strong relative performance of the BXMD Index is the volatility risk premium – in recent decades SPX options generally have been richly priced. Exhibit 8 of the paper by Wilshire at shows that S&P 500 implied volatility usually has been higher than subsequent realized volatility, and this has facilitated higher risk-adjusted returns for option-selling indexes such as the BXMD and PUT indexes.

The posts on this blog are opinions, not advice. Please read our Disclaimers.

“Counter-cyclical” adjustment factor resumed to anchor Chinese currency

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Jack Jiang

Senior ETF Specialist, Index and Quantitative Investment

ICBC Credit Suisse Asset Management (International) Co., Ltd.

China resumed CNY fixing “counter-cyclical” adjustment factor

The People’s Bank of China (PBOC) announced on August 24 that China’s CNY fixing reporting banks have resumed the counter-cyclical adjustment (CCA) factor in the CNY official midpoint this month. This is the second move of Chinese authorities after the adoption of a 20% reserve requirement of FX forward positions on August 3. According to the PBOC, the moves are aimed at mitigating the RMB depreciation pressure arising from the procyclical sentiment caused by the strong USD and ongoing trade frictions.

 What is the counter-cyclical factor?

The counter-cyclical adjustment (CCA) factor was first introduced in May 2017 as a third factor on top of the basket of trade-weighted currency indices and closing spot level at 4:30 pm of the previous trading day when settling the official midpoint. The intention of this additional factor was to ward off the one-way bets on the yuan and the subsequent capital outflows.

The first introduction of the CCA in May 2017, when the yuan was also weak at around 6.9 against the U.S. dollar, stemmed the depreciation trend and was followed by sustained strengthening in the yuan against a basket of currencies. The S&P China 500 turned upward as well (see Figure 1). This factor was suspended in January 2018 as the depreciation pressures dissipated.

A signal to support the yuan

The announcement was seen as a signal from the PBOC that it is not comfortable with further depreciation in the yuan, as it could trigger capital outflows.

The yuan hovered at a 2.5 week high against the U.S. dollar on Monday, arresting the slump from the middle of June that has rattled global markets. (The S&P China 500 followed the trend again as indicated in Figure 1).

Some market players go with the hypothesis of a “7-3” threshold for stability—that is, not breaching 7 (or around 6.9) for the U.S. dollar vs. the yuan and FX reserves not falling below USD 3 trillion for Chinese regulators.

Nevertheless, in the long term, the currency rate of the world’s second-largest economy will rest with the expected return and risk premium on the investment.


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The posts on this blog are opinions, not advice. Please read our Disclaimers.

Relative Performance Impacts From the Introduction of Communication Services

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Philip Murphy

Former Managing Director, Global Head of Index Governance

S&P Dow Jones Indices

S&P Dow Jones Indices will reshuffle stocks in September to reflect the revised structure of the Global Industry Classification Standard (GICS®) in its indices. The move will see telecommunication services replaced by a new sector called communication services. Its constituents will transfer from telecommunication, information technology (IT), and consumer discretionary.

Exhibit 1 shows affected S&P 500® sector weights as of July 10, 2018. Pro forma sector weights represent the index on July 10, 2018, as if communication services was in effect at that time. After September 2018, S&P 500 sectors should be more evenly distributed by index weight than they now are. Pro forma IT would lose almost 6% of its index weight, consumer discretionary almost 3%, and communication services would gain the difference.

The performance of headline cap-weighted benchmarks like the S&P 500 will not be affected by the GICS change. However, changes will occur in performance of affected sectors, stock contribution to sector returns, sector contribution to benchmark returns, and traditional performance attribution. In turn, assessments of active managers’ value creation/destruction may be affected.

To show a hypothetical impact of the GICS change on stock contributions to sector returns, Exhibit 2 provides data from the S&P 500 Information Technology sector for the one-year period from July 31, 2017 through July 31, 2018. Including reinvestment of dividends, the S&P 500 IT Sector returned 28.48%, Apple (AAPL) stock returned 29.95%, and Microsoft (MSFT) returned 48.76%.

What are the mechanics behind pro forma changes in sector performance and stock contributions? With the departure of names like Alphabet (GOOG; GOOGL), Facebook (FB), and others, the IT sector will lose weight in the S&P 500. However, within the IT sector remaining stocks will be up-weighted to compensate for those departures. All else equal, returns of large stocks like Apple (AAPL) and Microsoft (MSFT) will therefore have even more impact on sector performance. On a pro forma basis, Apple’s and Microsoft’s strong returns for the one-year period ending July 2018 would have combined with their larger weights within IT to help pull up the overall return of the sector to 33.27%—an even higher bar for active technology stock pickers! Of course, circumstances in every period are different and the opposite could have been true.

Structural updates to GICS, such as the addition of the real estate sector several years ago, and the upcoming shift to communication services, are evidence that GICS is a dynamic framework seeking to reflect economic evidence and trends. Stakeholders utilizing sector-based performance contribution and/or attribution analysis should be aware of these changes and the potential effects they can have on their analyses.

The posts on this blog are opinions, not advice. Please read our Disclaimers.