Get Indexology® Blog updates via email.

In This List

Changes to the S&P BSE SENSEX

Market Conditions Favored Government Bond Funds in Second Half of 2018

S&P and Dow Jones Islamic Indices Outperform Conventional Benchmarks in Q1 2019

Using GARP Strategies for Indices Part IV – Factor Exposures, Sector Composition, and Performance Attribution

This Little Piggy Isn't Going to Market

Changes to the S&P BSE SENSEX

Contributor Image
Mahavir Kaswa

Former Associate Director, Product Management

S&P BSE Indices

The methodology of the S&P BSE SENSEX has seen many changes over the last 30 years. In October 2018, it was again modified after an extensive market consultation.

The recent changes brought new clarity to the boundaries for entry and exit of stocks in the index. Constituents are selected by size and liquidity. Now, any constituent with a free-float market cap rank beyond 39 will be dropped from the index and any non-constituent with a rank equal to or less than 21 will qualify for inclusion in the index. This helps the S&P BSE SENSEX methodology become rules-based, transparent, and objective.[1]

Using the new methodology as a part of the semiannual index reconstitution, Asia Index Private Ltd (a joint venture between S&P Dow Jones Indices and BSE Ltd) announced changes to the S&P BSE SENSEX composition on November 22, 2018. Bajaj Finance (a leading non-banking finance company company) and HCL Technologies (a leading global information technology company) replaced Wipro and Adani Ports and Special Economic Zone (see Exhibit 1). These changes were effective as of the market open on December 24, 2018.

The S&P BSE SENSEX noted total returns of 7% over the three months since the previous rebalance. During this period, new members Bajaj Finance and HCL Technologies outperformed the index by 2.5% and 0.6%, respectively, on a total returns basis. Good though this outperformance is, it had a minor effect of 0.27%, combined, on the index’s total return, on account of the two new companies’ small weight in the index.

Exhibit 1: Return Characteristics of S&P BSE SENSEX Constituents
Inclusion Bajaj Finance Ltd 1.69 9.47 0.16 Financials 7.12
Inclusion HCL Technologies Ltd 1.47 7.58 0.11 Information Technology 9.81
Exclusion Wipro Ltd 1.01 9.01 NA Information Technology 9.81
Exclusion Adani Ports And Special Economic Zone Ltd 0.79 0.32 NA Industrials -0.49

Source: Bloomberg and Asia Index Private Limited. Contribution and total returns from Dec. 21, 2018, to March 22, 2019. Weight as of rebalance as of Dec 21, 2018. Past performance is no guarantee of future results. Table is provided for illustrative purposes.

Historically, India’s equity market has been dominated by the Financials sector, and this is also true of the S&P BSE SENSEX. The weight of Financials in the index before the October 2018 changes was 41.5%. It increased by 1.3% to 42.8% on account of the inclusion of Bajaj Finance. The Industrials sector noted a fall of 0.9% in sector weight with the exclusion of Adani Ports and Special Economic Zone.

Exhibit 2: GICS Sector Weights since S&P BSE SENSEX Methodology Change
Communication Services 1.13 1.12 0.0
Consumer Discretionary 8.14 8.02 -0.1
Consumer Staples 10.19 10.04 -0.2
Energy 12.06 11.88 -0.2
Financials 41.50 42.80 1.3
Health Care 1.28 1.26 0.0
Industrials 5.63 4.77 -0.9
Information Technology 13.56 13.72 0.2
Materials 3.90 3.85 -0.1
Utilities 2.59 2.55 0.0
Total 100.0 100.0

Source: Asia Index Private Limited. Weights as of Dec. 21, 2018. Table is provided for illustrative purposes.

The S&P BSE SENSEX, India’s most tracked bellwether index, is designed to measure the performance of the 30 largest, most liquid, and financially sound large-cap companies across key economic sectors of the Indian economy. The index represents approximately 44% of BSE-listed companies in terms of total market capitalization. It follows a free-float-adjusted, market-cap-weighted methodology and is reviewed semiannually in June and December.

[1] For detailed methodology please visit

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

Market Conditions Favored Government Bond Funds in Second Half of 2018

Contributor Image
Hong Xie

Former Senior Director, Global Research & Design

S&P Dow Jones Indices

The SPIVA® U.S. Year-End 2018 Scorecard shows a reversal of the relative short-term performance of fixed income funds at the end of 2018 from six months prior. Combined with the interest rates move, this might shed some light on understanding the duration positioning of active funds.

We focus on government bond funds for our analysis, since duration positioning is the most important directional exposure for this type of strategy. Exhibits 1 and 2 show changes in interest rates alongside the relative performance of government bond funds as compared to their benchmarks, using one-year gross returns.

When the bond markets changed direction from a sell-off in the first half of 2018 to a rally in the second half, the percentage of short and intermediate bond funds underperforming their benchmarks increased significantly, from 22% and 11%, to 52% and 65%, respectively. At the same time, the reverse happened to long-end government bond funds. These quick inversions of performance may indicate that most short and intermediate bond funds were underweighting duration going into the second half, and the ensuing bond rally caught active bond managers by surprise.

Yet the SPIVA Year-End 2018 showed consistent underperformance from more than half of the funds in most of the taxable bond fund categories over the mid- and long-term periods. For example, as of the end of 2018, more than 50% of such funds underperformed their benchmarks on five-year net return.  This divergence between short- and long-term relative performance by taxable bond managers is not unique in the history of SPIVA.

Exhibit 3 shows the percentage of fixed income funds underperforming benchmarks historically on one-year and five-year bases, where the red text indicates years when more than 50% of the funds lagged benchmarks. More than 50% of the funds outperformed their benchmarks occasionally over the one-year basis, but it was less common over the five-year horizon.

The latest SPIVA U.S. report shows that more than 50% of short and intermediate bond funds underperformed their benchmarks after outperforming six months ago. Our analysis shows that on a five-year return basis, such a switch of relative performance was unusual, as underperformance was persistent.

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

S&P and Dow Jones Islamic Indices Outperform Conventional Benchmarks in Q1 2019

Contributor Image
John Welling

Senior Director, Head of Global Equity Indices

S&P Dow Jones Indices

Information Technology and Financial Sectors Biggest Contributors

Global S&P and Dow Jones Shariah-compliant benchmarks outperformed their conventional counterparts in Q1 2019 as Information Technology—which tends to be overweight in Islamic indices—finished the quarter at the top of the sector leaderboard while Financials—which is underrepresented in Islamic indices—underperformed the broader market. The S&P Global BMI Shariah and Dow Jones Islamic Market (DJIM) World each gained 14.3% and 14.1%, respectively, outperforming the conventional S&P Global BMI by approximately 200 bps.

The outperformance trend played out across all major regions as Shariah-compliant benchmarks measuring U.S., Europe, Asia Pacific, and emerging markets each finished the quarter ahead of conventional equity benchmarks by meaningful margins.

U.S. Equities Led the Rest of World in Q1

The S&P 500® Shariah marked its best quarterly return since the inception of the index in 2006, with a gain of 15.0%. A more dovish stance from the U.S. Federal Reserve and hopes for a U.S.-China trade breakthrough helped push U.S. equities higher in the quarter following a more tumultuous close of Q4 2018. Europe and Asia Pacific equities followed in performance, as each enjoyed double-digit percentage gains.

MENA Equities Underperformed – Country Results Varied

After MENA equity outperformance in 2018, the S&P Pan Arab Composite lagged high-performing emerging and global markets during Q1 2019 with a gain of 9.4%. The S&P Egypt BMI led the way in the region in Q1, gaining a solid 19.3%, followed by the S&P Bahrain BMI, which added 15.0%. The Saudi Arabia BMI, which was promoted to emerging market status in March, gained a favorable 14.1%. The S&P Oman BMI and S&P Qatar BMI lagged the most, falling 1.6% and 1.1%, respectively.

For more information on how Shariah-compliant benchmarks performed in Q1 2019, read our latest Shariah Scorecard.

A version of this article was first published in Islamic Finance News Volume 16 Issue 14 dated April 10, 2019.

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

Using GARP Strategies for Indices Part IV – Factor Exposures, Sector Composition, and Performance Attribution

Contributor Image
Wenli Bill Hao

Director, Factors and Dividends Indices, Product Management and Development

S&P Dow Jones Indices

In this blog, the fourth in our introduction to Growth at a Reasonable Price (GARP) strategies, we cover factor exposures, sector composition, and performance attribution.

Targeted Factor Exposures

Exhibit 1 shows the active exposures (in percentages) of the S&P 500® GARP Index to the five factors used in GARP strategies: three-year sales per share (SPS) growth (SGROW), three-year earnings per share (EPS) growth (EGROW), earnings-to-price ratio (EP), return on equity (ROE), and financial leverage ratio (LEV). Active exposure is defined as the portfolio factor exposure minus the benchmark factor exposure. Factor percentage exposure is defined as the active exposure of one factor divided by the sum of all five factors. The monthly average of all periods is taken to represent the average active exposure. In Exhibit 1, we see that SPS growth and EPS growth had exposure levels that dominated the factor exposures, with 31% and 27%, respectively. EP, ROE, and LEV had exposures of 14%, 11%, and 16%, respectively. The factor exposure levels in the first layer of filters doubled that of the second layer of filters. The exposure results show that the multi-factor sequential filtering approach achieved its design goal.

Sector Composition and Performance Attribution

GARP strategies use bottom-up stock selection. The only constraint on sector composition is that each sector is capped at a maximum of 40%. As shown in Exhibit 2, the active weight of the S&P 500 GARP Index didn’t exceed 7%. The active weight is defined as the portfolio sector weight minus the benchmark sector weight. The two-factor Brinson attribution analysis shows that strategy outperformance mainly comes from stock selection rather than sector allocation. These findings are in line with our bottom-up strategy design process.

In conclusion, the multi-factor sequential filtering approach has achieved its designed goal for GARP strategies. Moreover, sector composition and performance attribution analysis show that the strategy has limited active sector exposure, and its outperformance is mainly due to stock selection.

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

This Little Piggy Isn't Going to Market

Contributor Image
Fiona Boal

Managing Director, Global Head of Equities

S&P Dow Jones Indices

Even eagle-eyed commodities investors might be surprised to learn that lean hogs have been one of the best-performing individual commodities so far in 2019. As of April 5, 2019, the S&P GSCI Lean Hogs was up an impressive 19.5% since the beginning of the year, outperforming the broad S&P GSCI (up 18.4%), and up 46% since Feb. 20, 2019. While lean hogs might seem like a trivial asset to cover in this medium, even in the relatively idiosyncratic world of commodities, it illustrates an important characteristic of individual commodity markets, namely their usefulness in expressing investment theses that are dependent on unique geopolitical, demographic, structural, weather, and health or disease factors. It also provides a timely reminder of the impact that significant price adjustments in real assets, such as commodities, have on underlying levels of economic activity, inflation, and fiscal and monetary policies.

The driving force behind the rally in lean hog prices has been a disease outbreak and its expected impact on supply. Lean hogs spent the first two months of the year in the doldrums, fixated on higher-than-expected levels of U.S. pork production and ongoing market access restrictions for U.S. pork in key export markets. By March, these factors were dwarfed by the realization that the scope, severity, and impact of the African swine flu (ASF) outbreak in China had been greatly misunderstood. ASF doesn’t affect humans but has a very high mortality rate in pigs and has no vaccine or cure. According to the FAO, China announced its first ASF outbreak on Aug. 3, 2018, and has since confirmed 118 outbreaks.[i]

To put the Chinese market in perspective, China is both the largest producer and consumer of pork in the world and has a hog herd conservatively estimated to be in excess of 430 million, almost three times the size of the next largest herd (in the European Union). Colleagues at S&P Global Platts have recounted that news reports from China suggest that only 20 of the 100 breeding herds in China are disease-free: the supply impact of ASF could be sizeable and long-lasting (sows have a gestation period of “three months, three weeks and three days” and pigs do not reach slaughter weight until they are at least six months old). The USDA’s attaché in Beijing has forecast Chinese pork production at 51.4 million metric ton this year, down 5% from 2018, with imports forecast to hit 2 million metric tons, up 33% year over year.[ii]

The spread of ASF risks creating a big hole in global pork supply, and the U.S. is likely best suited to fill this hole, as U.S. supplies are expected to increase, while supplies in other markets are steady or even declining. However, it is worth noting that at this time, U.S. pork producers continue to contend with a retaliatory 50% tariff in China (on top of the regular tariffs faced by all other importing countries). The tariff in China continues to make products from other countries more competitive versus the U.S., at least in the short term. Filling the disease-induced supply hole will not be straightforward.

The broader implications of ASF and higher pork prices, particularly in China, are noteworthy. Pork is believed to be the single largest item in the Chinese CPI basket (official components and weights are not disclosed), and while domestic Chinese pork prices are notoriously volatile, policy makers are undoubtedly already worried about more than just the rising cost of their red-fried pork lunch.

There have been no reported outbreaks of ASF in commercial hog herds in the U.S. or Western Europe, but the potential impact of an outbreak on lean hog prices in either region could prove to be momentous.




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