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Digital Market Toolkit Expands with the Latest S&P Cryptocurrency Indices

Why ETFs Held Up to 2020's Pressure Test

Examining the Risk/Return Impact of International Diversification in India

Introducing the S&P Dividend Growers Indices

How ESG + S&P Dividend Aristocrats Influences Risk/Return

Digital Market Toolkit Expands with the Latest S&P Cryptocurrency Indices

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Sharon Liebowitz

Senior Director, Innovation & Strategy

S&P Dow Jones Indices

We are proud to announce the launch of our latest cryptocurrency indices, featuring the new S&P Cryptocurrency Broad Digital Market (BDM) Index.

As we have discussed before, cryptocurrencies come with a host of new opportunities and challenges. As an emerging space, one of the biggest issues is a lack of transparency.

Our new S&P Cryptocurrency BDM Indices provide transparency with a wide snapshot of the cryptocurrency market and reflect a view of market performance overall. The S&P Cryptocurrency BDM Index includes more than 240 coins at launch, and we estimate that it covers over 80% of the current total cryptocurrency market capitalization.1

In terms of the indices themselves, the S&P Cryptocurrency BDM Indices are weighted by market capitalization. This corresponds to coin supply multiplied by coin price for cryptocurrencies. Because the market is especially dynamic, the use of fixed ratios or fixed values to determine market capitalization is quickly outdated. Instead, the indices use a clustering algorithm to select the appropriate cohort of constituents. For additional details on the market capitalization classification algorithm, please refer to the methodology.

To be included in the index universe, coins must be priced by Lukka Prime and trade on Lukka-recognized exchanges. Additional eligibility criteria include the following.

  • Market Capitalization – Each constituent must have a market capitalization value greater than or equal to USD 10 million at the time of inclusion in the index.
  • Liquidity – Each constituent must have a three-month median daily value traded (MDVT) of USD 100,000 at the time of inclusion in the index.
  • Validating Research – Each constituent must have a supporting white paper.
  • Exclusions:
    • Stablecoins or any other pegged digital assets are excluded because while they are an essential part of the cryptocurrency ecosystem, they will not reflect growth (or contraction) in the market.
    • Privacy-enhanced coins are excluded since they can hide the identity and profile of their holder.
    • Coins that are or become subject to a regulatory or legal concern may be excluded.

While our initial cryptocurrency indices that launched in May 2021 focused on the two largest and most prominent cryptocurrencies—Bitcoin and Ethereum—this next series offers a broader view of the market. In the cases of certain indices, Bitcoin and Ethereum are excluded.

This launch includes the following indices:2

The exclusions serve to highlight the performance of relatively smaller coins that are overshadowed by the dominance of the two largest coins—which make up approximately 63% of total market capitalization.3 Exhibit 2 shows how the index’s average coin market capitalization diminishes dramatically as mega- and large-cap constituents are excluded—from almost USD 5 billion in the S&P Cryptocurrency BDM Index, to USD 1.1 billion in the S&P Cryptocurrency BDM Ex-MegaCap Index, to just USD 230 million in the S&P Cryptocurrency BDM Ex-LargeCap Index.

Stay tuned as we expand the cryptocurrency index series.

1 Source: S&P Dow Jones Indices LLC, USD 1.46 trillion, based on 950+ assets priced by Lukka Prime, as of June 30, 2021.

2 See FAQ for additional details.

3 Source: Lukka, USD 1.46 trillion, based on 950+ assets priced by Lukka Prime, as of June 30, 2021.

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

Why ETFs Held Up to 2020's Pressure Test

What could 2020’s liquidity lessons mean for the insurance investment landscape moving forward? S&P DJI’s Tim Brennan joins State Street Global Advisors’ Ben Woloshin, Citadel’s Katie Stiner, and One America’s Brian Matthews for a closer look at this evolving landscape.

Watch S&P DJI’s Annual Insurance Summit: https://www.spglobal.com/spdji/en/events/annual-insurance-investment-summit-how-are-insurers-staying-ahead-of-the-curve/#summary

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

Examining the Risk/Return Impact of International Diversification in India

Take a deeper dive on our recent paper, From Zero to Hero: The Indian Case for Global Equity Diversification, which explores how and why some investors are looking abroad for potential opportunities, with S&P DJI’s Tim Edwards & Koel Ghosh.

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

Introducing the S&P Dividend Growers Indices

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Pavel Vaynshtok

Managing Director, Global Head of Strategy Indices

S&P Dow Jones Indices

Dividends are an important part of the investment toolkit, contributing 36% to the total return of the S&P 500® since 1936.1 This sizable contribution has been particularly welcome during the multi-year low interest rate environment and, more recently, as the world has faced economic dislocations induced by COVID-19. In addition to dividend income, investors have been clamoring for higher-quality companies, with sustainable earnings and a less-volatile return profile.

S&P Dow Jones Indices recently unveiled a series of indices that addresses these themes: the S&P U.S. Dividend Growers Index and S&P Global Ex-U.S. Dividend Growers Index. In this blog, we offer an introduction to these indices and highlight their most salient features. In two subsequent blogs, we will explore methodological details and highlight the indices’ characteristics and historical performance.

Focus on Dividend Growth

The S&P Dividend Growers Indices focus on companies that have a history of consistently increasing dividends over multiple, consecutive years (10 years for the U.S. index and 7 years for the Global ex-U.S. index). Put simply, a company’s ability to reliably boost dividends for multiple years should be an indication of a certain amount of financial strength and discipline. Moreover, with limited opportunities for income generation and investor concern around market volatility, dividend growers’ commitment to consistent capital return may provide a more sustainable and stable source of income, potentially with lower volatility (see Exhibit 1).

Avoiding Dividend Yield Traps

Not all yields are created equal. A company’s dividend yield is calculated as its dividends divided by the company’s stock price. It is possible that a company earns a high dividend yield moniker simply through price underperformance, rather than as a result of growing its dividends. The S&P Dividend Growers Indices attempt to avoid these yield traps by excluding the top 25% of the highest-yielding eligible companies. Our research shows that, on average, the highest-dividend-yielding securities have historically proven to be yield traps, having achieved their high yielding status through underperformance (see Exhibit 2).

These lackluster returns could point to underlying business instability, with the highest yielders unfavorably changing their dividend policies, on average, at nearly triple the rate of the index constituents for the U.S. index, and at nearly twice the rate for the Global ex-U.S. index.2 Not surprisingly, these potential yield traps tend to exhibit lower risk-adjusted returns (see Exhibit 3).

Creating a High Capacity Index

When creating an index, one of the most critical considerations is the index’s investability (i.e., how efficiently the index can be replicated). The S&P Dividend Growers Indices were created with an eye toward high-capacity strategies. The next blog will address index construction and describe liquidity thresholds, the multi-day rebalance schedule, our stock weighting approach, and inclusion of every eligible company—all techniques designed to enhance the indices’ investability.

1 Source: S&P Dow Jones Indices LLC and FactSet. Data as of May 31, 2021.

2 We define an unfavorable dividend policy change for consistent dividend growers as dividend elimination, omission, cut, or maintaining same level of dividends.

 

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

How ESG + S&P Dividend Aristocrats Influences Risk/Return

What happens when cutting-edge ESG data is applied to quality dividend growers? Jon Winslade and Ari Rajendra of S&P DJI join Ryan Reardon of State Street Global Advisors to explore how the new S&P ESG Dividend Aristocrats Indices could help market participants identify and access new and innovative opportunities.

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