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Equal Weight Indexing during Economic Recovery

How Efficient Is the S&P/KRX Carbon Efficient Capped Index?

Comparing Small-Cap Indices in Developed and Emerging Markets

How Are Insurers Staying Ahead of the Curve?

The Rebalance of Power: Tesla, Walmart, & Disney Join the S&P 500 ESG Index, Facebook, Wells Fargo, & Costco Dropped

Equal Weight Indexing during Economic Recovery

Contributor Image
Hussein Rashid

Vice President, ETF Strategist

Invesco Canada

2020 was a year for the history books – especially from a finance perspective. With COVID-19 ripping throughout the globe, we saw equity markets decline rapidly as several countries closed their borders. At the same time, however, we saw some companies flourish as people spent more time at home. Companies like Apple, Microsoft, and Google1 shined brightly and became larger than ever before. Central banks globally introduced measures that aided this appreciation by reducing rates to record lows, fueling most growth-oriented stocks upward at a rapid pace.

However, over three months into 2021, we are now seeing signs of recovery towards normalcy, with continued supportive measures by many central banks and governments, along with a growing number of people being vaccinated.

So, what does that look like from a market leadership perspective? As the recovery unfolds and economic activity accelerates, we would expect market leadership to align with that of the left column of the chart below.

We have already seen a steepening yield curve with longer-dated bond rates rising – this could temper the strong run up in growth-oriented stocks. Near the end of last year, the move from growth stocks to more value-oriented cyclical stocks, and the move from large-cap stocks to small/mid-cap stocks started to occur. Many of these stocks, especially names in the S&P 500®, will tend to benefit more from the economy and society reopening.

We take a look at the S&P 500® Equal Weight Index with respect to this reopening and potential for economic recovery. By equal-weighting the S&P 500®, one aims to remove the biases to the mega-cap names (like Apple, Microsoft, Google) and allocates more to the rest of the index constituents. This inherently gives more exposure to the smaller names in the S&P 500®, along with increased exposure to value-oriented sectors.

Historically, equal-weight indexing has provided outperformance during periods of recovery, relative to the broader market-cap weighted S&P 500® Index. In significant down periods, like the global financial crisis and tech bubble, the S&P 500® Equal Weight Index saw significant outperformance after the trough.

The chart above shows historical 12-month rolling excess return of the S&P 500® Equal Weight Index and the S&P 500 ® Index. After the significant decline from the tech bubble and global financial crisis, the S&P 500 ® Equal Weight Index showed significant excess return, as cyclical stocks, along with smaller names in the index, outperformed the mega-cap stocks in the index.


1 The above companies were selected for illustrative purposes only and are not intended to convey specific investment advice.

Important Information:

Commissions, management fees and expenses may all be associated with investments in exchange-traded funds (ETFs). Unless otherwise indicated, rates of return for periods greater than one year are historical annual compound total returns including changes in unit value and reinvestment of all distributions, and do not take into account any brokerage commissions or income taxes payable by any unitholder that would have reduced returns. ETFs are not guaranteed, their values change frequently and past performance may not be repeated. There are risks involved with investing in ETFs and mutual funds. Please read the prospectus before investing. Copies are available from Invesco Canada Ltd. at

Limitations on use of hypothetical data: Performance data for the period before the creation date for the relevant index has been reconstructed and is calculated on a basis consistent with each index’s current basis of calculation. An investor cannot invest directly in an index. Performance for an index does not reflect fees and expenses that might be applicable to a fund. The hypothetical performance data for these Indices should not be taken as indicating that if the Index had, in fact, existed during the shown time periods, that this index would have achieved the hypothetical results shown. Actual results might have differed from the shown results.

The views expressed on this document are based on current market conditions and are subject to change without notice; they are not intended to convey specific investment advice. Forward-looking statements are not guarantees of future results. They involve risks, uncertainties and assumptions, there can no assurance that actual results will not differ materially from expectations. Diversification does not guarantee a profit or eliminate the risk of loss. Investments cannot be made directly in an index.

There are risks involved with investing in ETFs. Please read the prospectus for a complete description of risks relevant to the ETF. Ordinary brokerage commissions apply to purchases and sales of ETF units.

Most Invesco ETFs seek to replicate, before fees and expenses, the performance of the applicable index, and are not actively managed. This means that the sub-advisor will not attempt to take defensive positions in declining markets and the ETF will continue to provide exposure to each of the securities in the index regardless of whether the financial condition of one or more issuers of securities in the index deteriorates. In contrast, if an Invesco ETF is actively managed, then the sub-advisor has discretion to adjust that Invesco ETF’s holdings in accordance with the ETF’s investment objectives and strategies.

The S&P 500® Equal Weight Index (in this section referred to as the “Index”) is designed to track the equally weighted performance of the 500 companies in the S&P 500®. The S&P 500® is a capitalization-weighted index that is used as a benchmark of the large cap U.S. equity market. The Index has the same constituents as the S&P 500®; however, the S&P 500®’s constituents are weighted by market capitalization, while each company is allocated a fixed weight of 0.20% at each quarterly rebalancing of the Index. The Index is rebalanced quarterly to coincide with the quarterly rebalancings of the S&P 500®. The Index is rebalanced quarterly and weighted so that each company in the Index is assigned an equal weight of 0.20%.

S&P®, S&P 500® and S&P 500® Equal Weight Index are registered trademarks of Standard & Poor’s Financial Services LLC and have been licensed for use by S&P Dow Jones Indices LLC. The S&P Equal Weight Index is a product of S&P Dow Jones Indices LLC and has been licensed for use by Invesco Canada Ltd. This Invesco ETF is not sponsored, endorsed, sold or promoted by S&P Dow Jones Indices LLC, and S&P Dow Jones Indices LLC makes no representation regarding the advisability of investing in such a product.

Invesco® and all associated trademarks are trademarks of Invesco Holding Company Limited, used under license. 

Invesco Canada Ltd., 2021


Published date April 23, 2021


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

How Efficient Is the S&P/KRX Carbon Efficient Capped Index?

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Ryan Christianson

Former Associate Director, APAC Lead, ESG Indices

S&P Dow Jones Indices

Following the South Korean government’s announcement of the Green New Deal in the summer of 2020, S&P Dow Jones Indices and the Korea Exchange (KRX) partnered to launch the S&P/KRX Carbon Efficient Capped Index on Nov. 16, 2020. The S&P/KRX Carbon Efficient Capped Index seeks to provide exposure to the Korean equities market, while also minimizing exposure to high-carbon-emitting companies and most importantly, promoting change from corporates in the market.

With the industry group’s weights kept neutral, the index is designed to have similar performance characteristics to the benchmark, as shown in Exhibit 1. However, that being said, it is promising to see that the carbon-efficient strategy slightly outperformed over the past several years, perhaps reflecting the positive effect on returns for carbon-efficient companies. In the next section, we take a deeper look at how companies are reweighted within the S&P/KRX Carbon Efficient Capped Index to achieve the 36.35% reduction in carbon intensity.

S&P Carbon Global Standard

The S&P Carbon Global Standard was launched in 2018 to compare any company within a given industry group to a global standard. For each GICS® industry group, decile thresholds are determined that would categorize companies from 1 to 10, from the least carbon intensive to the most. In addition, the S&P Carbon Global Standard also reviews the industry groups and classifies each as either “High,” “Mid,” or “Low” impact. Both of these identifiers are utilized by the S&P Global Carbon Efficient Index Series Methodology. The S&P Carbon Global Standard is revised on an annual basis to ensure that it is up to date with the status of emissions by companies around the world. Results are posted to the S&P Dow Jones Indices website, and can be found here.

Decile Classifications

Based on company carbon intensity data as provided by S&P Global Trucost, each company in the S&P/KRX Carbon Efficient Capped Index is assigned a decile rank according to the S&P Carbon Global Standard.

In comparison to their average weight in the underlying index, companies in the top three deciles saw weight increases ranging from 49.49% to 108.75%. On the contrary, companies in the bottom decile had an average weight decrease of -35.24%.

It is in constituent companies’ best interest to keep an eye on their emissions levels relative to their industry peers, as the S&P Carbon Global Standard changes on an annual basis. As companies around the world are changing their business practices to decrease their carbon intensity, complacency with the current status quo may leave a company behind.


Achieving decreased carbon intensity can be done in several ways. For example, simply excluding companies from high-carbon sectors such as Energy and Utilities has the potential to significantly decrease the footprint of a strategy. However, a simple exclusion of these sectors would not actually advance innovation and transformation, as these companies would be excluded solely for their classification within a sector, rather than their relative footprint in comparison to their industry group peers. As a result, the highest-emitting sectors would not have the same incentive to change their business practices as their peers.

As we have begun to see the impact of investments in carbon-efficient methodologies across other regions, such as Japan with the S&P/JPX Carbon Efficient Index, where carbon disclosure increased by more than 30% over the past three years, we are excited that the S&P/KRX Carbon Efficient Capped Index gives Korean companies and investors the opportunity to drive change.

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

Comparing Small-Cap Indices in Developed and Emerging Markets

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Rachel Du

Senior Analyst, Global Research & Design

S&P Dow Jones Indices

Not all small-cap indices are identical. Indices within the same market cap range can have varied performance in different markets. We studied the S&P Developed SmallCap and S&P Emerging SmallCap for their performance, volatility, and sector allocation in different market segments.

The S&P Global SmallCap is a widely used benchmark representing the global small-cap market. Made up of the S&P Developed SmallCap and S&P Emerging SmallCap, it covers 9,236 stocks from 25 developed and 25 emerging countries/regions as of April 30, 2021. Both subindices are float-market-capitalization weighted and reconstituted annually in September, the same as their benchmark.

Using monthly return data in U.S. dollars, the S&P Developed SmallCap outperformed the S&P Emerging SmallCap in 165 out of 316 months from Dec. 30, 1994, to April 30, 2021, displaying a 52.2% outperformance hit rate. On the other hand, the S&P Emerging SmallCap exceeded the S&P Developed SmallCap performance in 151 out of 316 months during the same period.

Exhibit 1 shows the return/risk comparison between the S&P Developed SmallCap and S&P Emerging SmallCap. The S&P Developed SmallCap did better in most of the periods, while the S&P Emerging SmallCap outperformed over the 20-year period. The S&P Emerging SmallCap had higher volatility during all the periods studied.

Exhibit 2 shows the 12-month rolling volatility since Dec. 31, 1994, where volatility is calculated as the annualized standard deviation of the monthly total return in U.S. dollars. While the S&P Emerging SmallCap has been more volatile than the S&P Developed SmallCap for most of the time observed, the S&P Developed SmallCap appeared to be riskier than the S&P Emerging SmallCap from December 2018 to April 2021, except from July 2020 to October 2020.

Historically, the S&P Emerging SmallCap has been more closely correlated to the emerging market, as measured by the S&P Emerging BMI, compared with the correlation between the S&P Developed SmallCap and the S&P Developed BMI (see Exhibit 3). This means that in emerging markets, the small-cap stocks have been more closely related to the broader market than small-cap stocks in developed markets over the studied period.

The sector exposure displayed in Exhibit 4 shows that as of April 30, 2021, both the S&P Developed SmallCap and S&P Emerging SmallCap have more weight allocated to Industrials, Information Technology, and Consumer Discretionary than other sectors. The S&P Emerging SmallCap is more overweighted in Materials, Utilities, and Consumer Staples than the S&P Developed SmallCap, while the S&P Developed SmallCap is more overweight in Health Care, Financials, and Industrials than the S&P Emerging SmallCap.

From year-end 1994 to the end of April 2021, the S&P Developed SmallCap delivered better returns overall, while the S&P Emerging SmallCap generally exhibited higher volatility. The difference in sector exposure may reflect the economic development and opportunity in different markets. While investing in small caps may offer potential long-term outperformance, it is important to consider the characteristics exhibited in different markets.

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

How Are Insurers Staying Ahead of the Curve?

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Raghu Ramachandran

Head of Insurance Asset Channel

S&P Dow Jones Indices

Environmental, social, and governance (ESG) has been a nearly ubiquitous topic of conversation among investors in recent years, bringing to light important questions: How do you measure it? How do you report it? Why should you use it? However, to date, few U.S. insurance companies have incorporated ESG into their policy guidelines, and the practicalities of implementing ESG are rarely addressed.

At our Annual Insurance Investment Summit – How Are Insurers Staying Ahead of the Curve?, NEPC’s Andrew Coupe and Liberty Mutual’s Patrizio Urciuoli explore the practical considerations of incorporating ESG into an insurance portfolio, alongside a host of other industry experts who tackle other topics relevant to insurance company investments. Since the Global Financial Crisis, insurance companies have had two major trades—trading illiquidity for yield and going down the credit curve. Two sessions at our summit focus on these critical issues and the challenges they pose for insurance companies. First, we explore whether illiquidity still has a place in an insurance investment portfolio with experts from BlackRock, F&G, S&P Global Market Intelligence, and S&P Global Ratings. Second, panelists from QBE Insurance, Voya Investment Management, Callan, and S&P DJI discuss the credit impact of COVID-19 on insurance portfolios.

We also look back at 2020 and the lessons we learned in the context of trading and liquidity. Even though the concept of ETFs originated out of the 1987 stock market crash, no one was sure how fixed income ETFs would behave during a stressed period—especially when the underlying securities weren’t trading. The chaos of spring 2020 was the perfect crucible to test fixed income ETFs, and panelists from Citadel, State Street, One America, and S&P DJI discuss how ETFs behaved during this liquidity crunch and what those lessons could mean for insurance companies moving forward.

Looking prospectively, we also examine areas of consideration or opportunity for insurance investors. Will inflation play a role in investments in the near future? How might liquid alternative indices help insurers diversify? What’s driving the high yield muni tailwind?

Access our Annual Insurance Investment Summit on-demand to explore these questions and more.

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

The Rebalance of Power: Tesla, Walmart, & Disney Join the S&P 500 ESG Index, Facebook, Wells Fargo, & Costco Dropped

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Mona Naqvi

Global Head of ESG Capital Markets Strategy

S&P Global Sustainable1

ESG momentum shows no signs of stopping, with sustainable fund assets nearing USD 2 trillion, following record inflows in Q1.1 Pressure on firms to perform in sustainability rankings has never been higher, as Wall Street’s hottest topic gets hotter still. But what firms benefit from all this heat? From the assets flowing into S&P 500® ESG Index related products,2 it seems the balance of power may be shifting. At least for the foreseeable future, Sustainability is King (or Queen). So, by almost royal decree, here are the results of the 2021 S&P 500 ESG Index annual rebalance.

What’s changed? First, the methodology itself—with the introduction of a new thermal coal screen last September following public consultation. Even though the index still aims to offer similar overall industry group weights to the S&P 500, with sustainability enhancements—rather than reduce carbon exposure, per se—it experienced a welcome decrease of 12% in carbon intensity since the last annual rebalance.3


A broader sustainability lens reveals that the index achieved an S&P DJI ESG Score improvement of 8% (at the index level), representing 23% of the overall ESG-improvement potential, given the sustainability characteristics of the starting universe.4 Within the underlying E, S, and G dimensions, the sustainable counterpart to the S&P 500 realizes numerous tangible enhancements, all while providing similarly broad U.S. equity exposure. Due to the depth and breadth of topics covered in the S&P Global Corporate Sustainability Assessment that underpins the S&P DJI ESG Scores, there are too many to demonstrate here, though a sample is provided in Exhibit 1. Such improvements are even more pronounced within industry groups, given the industry-specific nature of S&P DJI ESG Scores.5


What of the constituents? As of the 2021 rebalance, 315 constituents made it into the S&P 500 ESG Index, as 190 constituents were not included (79 were ineligible and 111 were eligible but not selected). As per the S&P 500 ESG Index methodology, companies might not qualify because they are: (a) ineligible according to certain ESG exclusionary criteria; or (b) simply not selected, even if they are eligible, because of poorer relative S&P DJI ESG Score performance than their index industry group peers. Exhibit 2 highlights how the S&P 500 translated into the composition of S&P 500 ESG Index in 2021.

As for major changes, Exhibit 3 highlights the biggest new additions and drops in terms of market capitalization. Other household names that made it into the sustainable index include Ford Motor Crop, News Corp, Marriott, and Etsy. Meanwhile, Lumen Technologies, L Brands, UDR, and Sealed Air Corp were among those that were removed despite being eligible, due to relatively poor S&P DJI ESG Score performance than their peers. Other names, such as Atmos Energy, Allegion, and Fortune Brands Home & Security were dropped because they fell to within the bottom 25% of S&P DJI ESG Score rankings among their global GICS industry group peers, rendering them ineligible. In addition, Johnson & Johnson, 3M, and Dupont remained on the exclusion list, as they have not yet completed the penalty period for their involvement in material public controversies.7

Interestingly, though the rebalance generates ample turnover, 74 constituents of the S&P 500 have consistently not met the rules-based selection criteria of the ESG index since it launched in January 2019 (see Exhibit 4). Conversely, 207 companies have managed to maintain their position in the sustainable index since its launch (see Exhibit 5).


Despite containing just 75% of the S&P 500 market capitalization, the aforementioned sustainability improvements were achieved with only 1.11% of tracking error and excess returns of 0.67% over the past five years—in part, helping to dispel the myth of an inherent sustainability versus performance tradeoff. However, since the five-year return includes back-tested history that was built before the index was launched, it is worth paying special attention to the live performance record over the past one year, when it exhibited excess returns of 0.42% and 1.83% of tracking error (see Exhibit 6).

But can this outperformance be explained away by other factors?


Performance attribution primarily reveals a story of selection. It was generally because of the stocks selected according to their sustainability credentials, rather than differences in sector exposure, that appear to have driven this excess return. Indeed, this should come as no surprise, as the methodology lends itself by design to a broadly sector-neutral outcome. Thus, the outperformance was not all necessarily due to significant overexposure to Tech and underexposure to Energy, as many might assume.


A closer look at the underlying factor exposure also reveals that the factor tilts are in fact quite similar to the S&P 500, save for a minor discrepancy in its exposure to larger firms.9 These similarities are consistent with the ESG index’s objective to provide a similar level of risk and return. As such, the absence of any sizeable unintended factor exposure cannot entirely explain this difference either—suggesting other “forces” are still potentially at work.


Though the aim of the S&P 500 ESG Index is not to outperform but provide exposure and performance broadly in line with the benchmark, these results show that a rules-based selection process, driven by ESG principles, has yielded greater exposure to high-performing companies. And so, without other explanatory challengers to usurp the performance throne, long may the reign of our sustainability monarch continue.



1 Source:

2 As of March 30, 2021, there is USD 4 billion of AUM in ETFs tied to the S&P 500 ESG Index, with more than half a billion USD of net new inflows in Q1 2021 alone.

3 Calculated as the percentage difference between the weighted average carbon intensity (WACI) of the S&P 500 ESG Index as of the rebalance dates in 2020 and 2021, measured in metric tons of CO2e per USD 1 million of revenues using S&P Global Trucost data.

4 The realized ESG potential depicts how much of the S&P DJI ESG Score improvement was achieved by the ESG index, relative to the maximum possible improvement that could in theory have been attained by investing solely in the single highest-ranked company by S&P DJI ESG Score. While diversification requirements would render this approach undesirable in practice, it is nevertheless an interesting metric to contextualize the S&P DJI ESG Score improvement relative to the starting characteristics of the benchmark universe. For example, in markets where companies are generally sustainable to begin with, it is harder to obtain a substantial S&P DJI ESG Score increase without incurring a sizeable loss of diversification or higher levels of tracking error.

5 Due to the industry-specific nature of the S&P DJI ESG Scores, driven by a materiality-weighted scoring framework, the aggregate S&P DJI ESG Score improvement metrics vary considerably by sector. For example, the S&P DJI ESG Score improvement for the Materials sector and Real Estate sectors both came to approximately 11%; whereas the improvement among the IT and Health Care sectors both came to approximately 6%, relative to the S&P 500. However, it is among the underlying ESG indicators where we find the greatest discrepancies in performance between industry groups, though the methodology accounts for too many data points (600-1,000 data points per company) to feasibly showcase here.

6 As the methodology prevents companies removed for this reason (at the discretion of the Index Committee) from reentering the index for one full calendar year.

7 See Appendices A and B for a detailed explanation of these changes.

8 S&P DJI ESG Scores are normalized by industry group and thus designed to be read as percentiles. For example, a company score of 70 means that this company has a higher score than 70% of its peers within its industry group. This allows for a comparison of relative rankings of companies across different industry groups, despite the industry-specific nature of S&P DJI ESG Scores.

9 This is unsurprising due to the generally positive correlation between sustainability performance and firm size, as visibility, access to resources, and operating scale are typically associated with large firms.

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