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Bitcoin’s Rise Reminiscent of U.S. Gold Rush

Latin American Equities Close the Year in the Red Despite the Strongest Q4 in 20 Years

Global Islamic Indices Advanced 28% YTD, Outperforming Conventional Benchmarks up to 12%

Manage Drawdown and Recovery with Dynamic Allocation

Unsung Stories of 2020

Bitcoin’s Rise Reminiscent of U.S. Gold Rush

Contributor Image
Jim Wiederhold

Former Director, Commodities and Real Assets

S&P Dow Jones Indices

The recent enthusiasm for Bitcoin is reminiscent of the Gold Rush in the western U.S. from 1848-1860. With fits and starts, U.S. enthusiasm for gold exploded over this time period. Gold was the most popular safe haven and store of value in the 19th century. Viewed as one of the least volatile commodities, gold prices during that time were surprisingly tepid in comparison to the current, highly volatile moves from Bitcoin. Less liquid than other established stores of value, Bitcoin’s recent move has been parabolic in nature, as seen in Exhibit 1.

Recently, the parallels between the two assets have grown. Both Bitcoin and gold are viewed as scarce, have the potential to be held outside of conventional financial markets, and have values that cannot be inflated away by relentless money creation and currency debasement. Market participants, including mainstream asset managers, appear to be looking to both as attractive inflation hedges. Gold and Bitcoin are also uncorrelated to other popular asset classes in portfolios, which provides evidence of their diversification benefits. Despite the low correlation, one glaring difference can be seen in the volatility of Bitcoin over the past five years. It is multiple times higher than other asset classes as seen in Exhibit 2, which shows the monthly annualized volatility over one-, three-, and five-year horizons.

In addition to performance, the fundamentals of Bitcoin and gold differentiate in owning one versus the other. Gold is a physical asset, while Bitcoin is a digital one. While both are scarce, gold does not yet have a ceiling to supply, while there ultimately can only be 21 million Bitcoins mined. Also, according to Chainalysis, 20% of current Bitcoin supply is considered not recoverable due to hard drives being lost in garbage dumps or passwords lost in early investors’ heads. On the demand side, there are a lot of similarities between the two assets, as can be seen in Exhibit 3. Gold is viewed as a more secure investment with a long history of use and is widely accepted by all types of market participants. On the other hand, concerns of Bitcoin theft were rampant a few years ago; though as Bitcoin becomes more mainstream, these worries are fading, although lingering technology and exchange counterparty risks remain. The different ways to access return streams of gold are conventional and easily accessed by different types of market participants. Bitcoin, however, is in its infancy, but it is slowly becoming more easily accessible to mainstream investors.

S&P DJI intends to launch global cryptocurrency asset indices based on data sourced from Lukka, our cryptocurrency pricing provider known for its institutional-grade pricing. Soon, reliable and user-friendly crypto benchmarks will be available to promote more transparency in this area. Lukka is a New York City-based crypto asset software and data company. S&P Global participated in Lukka’s USD 15 million Series C in December 2020.

Market participants cite many reasons why they allocate a slice of their portfolio to Bitcoin. For many of those reasons, gold is already the ideal, established candidate for adoption. The S&P GSCI Gold tracks the most actively traded gold futures on the CME. Whether looking for an inflation hedge, store of value, way to diversify, or directional play in commodity markets, gold is the asset with the longest track record of price appreciation in human history.

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

Latin American Equities Close the Year in the Red Despite the Strongest Q4 in 20 Years

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Silvia Kitchener

Director, Global Equity Indices, Latin America

S&P Dow Jones Indices

Volatility is often the name of the game in Latin America. While 2020 was no exception, global markets also rode the COVID-19 volatility wave (see Exhibit 1). The global pandemic exacerbated uncertainty around the world and all capital markets were affected, particularly during Q1 2020.

In Exhibit 1, we can see that the S&P Latin America BMI experienced the greatest loss (-46.0%) among our major regional indices in Q1, followed by the S&P MILA Pacific Alliance Composite (-37.5%), which represents Latin America excluding Brazil. Latin American equities rose in Q2, roughly in line with the global recovery, but then they lagged in Q3. Propelled by global economic optimism following the announcements of vaccine developments, the S&P Latin America BMI topped the leaderboard in Q4, gaining more than 30%, but it was not enough to recoup losses from earlier in the year, as the index finished the year down 12.9%.

Similar trends were seen across sectors and countries throughout the year (see Exhibit 2). During the first quarter, all sectors and countries dropped, with Energy and Brazil performing worst. During the subsequent quarters, countries and sectors staged a strong recovery, though some fared better than others—a sign that the pandemic affected some countries and sectors more than others. While Q4 saw impressive returns, with Energy generating the best returns (51.2%), it was the Information Technology (49.2% YTD) and Materials (28.3% YTD) sectors that more consistently contributed to positive performance throughout the year. Materials companies, which include exporters of copper and iron, registered record prices for their exports, since January 2013 for copper and October 2011 for Iron.1

Among Latin American countries, all flagship indices ended the year under water when measured in USD (see Exhibit 3). The best performers were the S&P/BVL Peru Select 20% Capped Index, down 0.4%, and Mexico’s S&P/BMV IRT, down 1.8%.

The story was different for returns in local currencies, given the significant depreciation of most currencies versus the U.S. dollar during the year (see Exhibit 4). The S&P Brazil BMI in BRL (6.43%), Argentina’s S&P MERVAL Index in ARS (22.9%), and the S&P/BVL Peru Select 20% Capped Index in PEN (8.8%) rounded up the leaders for YTD returns in local currency.

With the pandemic still raging in many parts of the world, what should we expect in 2021? The good news is that there are two vaccines with high efficacy being distributed in several countries. Currently, only citizens from Brazil, Chile, and Mexico have started to get vaccinated, while remaining Latin American countries are on a long waiting list. Economists in the region2 are watching the slow and fragile recovery. It is summer in the southern hemisphere, which has helped to curb the number of infections and hopefully by the fall and winter of 2021, the vaccine will have helped control the spread. The key now is how quick and effective the rollout of the vaccines will be in Latin America and the rest of the world before the global economy returns to a strong growth trend. It’s going to be an interesting year, yet again.

For more information on how Latin American benchmarks performed in Q4 2020, read our latest Latin America Scorecard.


1 Source: S&P Global Ratings and CapitalIQ. Copper (Comex HG), and NYMEX Iron Ore 62% Fe.

2 Diego Ocampo and Luis M. Martinez. Panorama del sector corporativo de América Latina para 2021: Un año de recuperación con altibajos. (Latin America Corporate Sector Overview for 2021: A Year of Recovery with Ups and Downs) Dec. 28, 2020. S&P Global Ratings.


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

Global Islamic Indices Advanced 28% YTD, Outperforming Conventional Benchmarks up to 12%

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John Welling

Director, Global Equity Indices

S&P Dow Jones Indices

Global equities enjoyed substantial gains in the last quarter of 2020, gaining 15.9%, as measured by the S&P Global BMI. Shariah-compliant benchmarks, including the S&P Global BMI Shariah and Dow Jones Islamic Market (DJIM) World Index, slightly underperformed their conventional counterparts in Q4 2020 due to the strong performance of the conventional Financials sector, which gained nearly 25% during the period. However, despite this, the outperformance of Islamic indices finished in double-digits YTD, with an advantage of 11.2% and 11.9%, respectively. The outperformance trend played out across all major regions, with the DJIM World Emerging Markets Index leading the pack, providing an additional 20.0% return above the conventional benchmark.

Sector Performance as a Key Driver

As global equities continued to recover and extend gains in Q4 2020, sector drivers played an important role in Shariah outperformance, as Information Technology—which tends to be overweight in Islamic indices—was the best performer among sectors, while Financials—which is nearly absent in Islamic indices—continued to heavily underperform the broader market YTD. Exhibit 2 demonstrates the effect on returns of over- and underweight sector allocations of the S&P Global BMI Shariah compared with the conventional benchmark.

The majority of S&P Global BMI Shariah outperformance—9.9% of the 11.2% total outperformance YTD—can be explained by differing sector allocations, while 1.3% can be explained by beneficial differences in stock selection.

MENA Equities in Recovery

Having fallen significantly during Q1 2020, MENA equity performance improved considerably during Q4, as the S&P Pan Arab Composite turned positive YTD, gaining 1.2%. The S&P Morocco BMI led the way in the region in Q4, gaining 18.4%, followed by the S&P UAE, which gained 12.0%. The S&P Pan Arab Composite Shariah surpassed its conventional counterpart by 7.8% during the year, in large part due to significant representation of Saudi Arabia, which outshone regional peers. The S&P Saudi Arabia and S&P Oman were the only MENA country indices to enter positive territory YTD, gaining 6.8% and 0.9%, respectively.

For more information on how Shariah-compliant benchmarks performed in Q4 2020, read our latest Shariah Scorecard.

This article was first published in IFN Volume 18 Issue 2 dated the 13th January 2021.

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

Manage Drawdown and Recovery with Dynamic Allocation

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Claire Yi

Former Analyst, Strategy Indices

S&P Dow Jones Indices

In October 2019, S&P Dow Jones Indices launched the S&P ESG Global Macro Index, an ESG-themed, regionally diversified, volatility-managed, multi-asset index. As discussed in my previous blog, the index has generated stable absolute returns of 5.44% annually, a volatility of 4.89%, and downside protection during extreme market scenarios, based on back-tested performance from Aug. 31, 2010, to Dec. 31, 2020.

The global equities market experienced unprecedented fast drawdown and recovery in 2020. Although the S&P ESG Global Macro Index’s performance was not as stunning as that of the S&P 500® in 2020, it outperformed a pure equity and static 60% equity/40% bond portfolio with a risk control mechanism.1 This blog reviews how the S&P ESG Global Macro Index’s dynamic asset allocation helped to achieve this outcome.

Economic- and Market-Signal-Based Allocation

The S&P ESG Global Macro Index uses a short-term economic movement signal and a medium-term market trend signal to revise its asset allocation on a monthly basis (see brochure).  Exhibit 2 provides the timeline of allocation signals of the S&P ESG Global Macro Index in 2020. There were three different phrases.

Phase 1: Before Sell-Off

At the beginning of 2020, the Organization for Economic Co-operation and Development’s composite leading indicator (the OECD’s CLI) was below 100, indicating economic activity was below its long-term potential level. Although the three-month momentum of the equity market was still positive, the index allocated 55% to equities and 45% to fixed income.

Phase 2: COVID-19 Sell-Off

The sell-off started on Feb. 19, and hit bottom on March 23. The S&P 500 declined 33.93% in 23 trading days. The S&P ESG Global Macro Index reduced its equity allocation from 55% to 0% on March 1, as the momentum signal turned negative during that month’s rebalance.

Phase 3: Recovery

On Aug. 18, the S&P 500 completely erased its February-March 2020 losses, calling an end to the COVID-19-driven plunge. As the market signal turned positive on July 1, the index reassigned a 55% weight to the equity basket to capture the upside potential gain from equities.

Risk Control Mechanism

After the monthly allocation is determined, the S&P ESG Global Macro Index applies a 5% risk control overlay by adjusting a leverage factor applied to the overall portfolio in order to achieve a stable risk at the index level. Exhibit 3 shows the allocation to each asset class after applying 5% risk control. There were three periods worth noting.

Period 1: From Feb. 19 to March 10, when the market started to fall in response to COVID-19, there was a clear negative relationship between equities and fixed income. The S&P 500 dropped 14.88% while the bond component2 gained 3.83% in 14 trading days. Before March, the index had a decreased leverage factor for protection. As the index switched to the bond portfolio starting March 1, it was leveraged. This is because the 100% bond portfolio’s volatility was less than 5%. The leverage resulted in a 2.3% return for the index from March 1 to March 10.

Period 2: From March 11 to 23, as oil prices fell, the negative relationship did not hold. The S&P 500 dropped 22.37%. During the same period, the bond stopped acting as a safe heaven and dropped by 1.37%, and the realized volatility of the all-bond portfolio was higher than 5%. The S&P ESG Global Macro Index thereby reduced its bond exposure by lowering the leverage factor and returned -1.30% during those nine trading days.

Period 3: After March 24, the market started to rebound, and the bond portfolio’s volatility decreased gradually. In response, the index continued to increase the leverage factor to maintain the 5% target volatility. From March 24 to June 30, the index kept its portfolio configuration unchanged, while increasing the leverage factor from 0.52 to 1.35. On July 1, the equity basket was added back to the index based on the positive market signal. The new equity/bond portfolio had a volatility higher than 5%. Thus, the index used a smaller leverage factor to maintain a stable level of risk, resulting in a 20.08% actual allocation to equity.

During volatile periods, especially in undesirable macroeconomic conditions, a dynamic allocation strategy, which balances risk and return during drawdowns and recoveries, could be worth consideration.



1 Risk control is commonly used in structured product’s underlying methodology, and a higher citation like 10% or 15% may lead to higher returns.

2 Represented by the index bond basket, including the S&P 10-Year U.S. Treasury Note Futures Index, S&P Euro-Bund Futures Index, and S&P 10-Year JGB Futures Index, following a ratio of 3:2:1.

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

Unsung Stories of 2020

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Sherifa Issifu

Senior Analyst, U.S. Equity Indices

S&P Dow Jones Indices

Early in 2020, global stock markets acted in concert during the sell-off, bottoming out around the world in late March. However, the extent to which different markets declined, and the strength of the subsequent recovery, differed significantly around the world. With 2020 now in hindsight, S&P DJI’s range of global equity indices tell a tale of distinctive performances, as well as a returning importance of swings in the currency markets.

On the surface, it was a good year: the S&P Global BMI finished with a full-year total return of 17% in U.S. dollars, with both emerging and developed components performing similarly. However, Latin America, Eastern Europe, and the U.K. closed 2020 lower—driven by risk-off sentiment and an initial move to safety that led to their slower recoveries. Meanwhile, the Nordic markets outperformed, while China and South Korea soared.

As shown in Exhibit 1, most of the 2020 lows occurred nearly simultaneously around March 23, 2020, but the scale of the drawdown, and the timing and speed of the recoveries, differed greatly.1 Exhibit 2 gives a more granular picture, plotting the time taken by a range of countries to get back to winning ways. Northern European countries were among the first to return to their highs, with Denmark taking just over two months to do so, and recovery times across the Scandinavian region averaging only four months. However, the global recovery really began with China: the S&P China BMI saw a smaller drawdown in March, setting a lower hurdle for redemption. The index took approximately three months to regain its losses—kicking off a wave of subsequent stock market highs. At the bottom of the spectrum, many Latin American countries and the U.K. still have some catching up to do.

Currency was a major factor in the performance of some markets, and Brazil in particular. In local currency terms, the S&P Brazil BMI had a respectable gain of 6%, but it declined 17% in U.S. dollar terms, driven by a 23% weakening of the Brazilian real (BRL) in 2020. A similar impact from currency meant 2020 gains dwindled when converted into U.S. dollars across several emerging markets, including Russia, Turkey, and Mexico. Part of this disparity was a result of the differences in the ability of countries to provide stimulus to their economies during the COVID-19 pandemic—as not every country could do “whatever it takes.”

Exhibit 3 shows that the currency markets hosted big winners as well. The S&P Europe BMI was lifted to a positive return (in U.S. dollar terms) entirely thanks to currency movements, after a 9% swing in the euro versus the U.S. dollar in 2020. There were similarly large moves for the greenback among a range of developed market currencies, including the Australian dollar (AUD) and the Nordic currencies (SEK and DKK).

Overall, 2020 was a rocky year for global markets, but with 2021 starting off on a positive note and signs of strong recoveries in the cyclical sectors that dragged down returns last year, we should see more country and regional equity markets fully recover from the 2020 sell-off and begin to write new stories for the year.


1 We define a recovery as the first point at which each index posted a new high for the year subsequent to its March 2020 low.


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