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S&P Global Clean Energy Index: A Path toward Greater Transparency

Volatility Returned in Q3 2021 with Latin American Equities Posting Mixed Results amid Political and Economic Uncertainty

Global Islamic Benchmarks Near Flat in Q3 2021, Narrowly Trailed Conventional Benchmarks YTD

What’s the Role of the S&P 500 in the Global Opportunity Set?

Performance Update of the S&P/TSX Capped REIT Income Index

S&P Global Clean Energy Index: A Path toward Greater Transparency

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Ari Rajendra

Senior Director, Head of Thematic Indices

S&P Dow Jones Indices

In April 2021, the S&P Global Clean Energy Index underwent changes to reduce constituent concentration, ease liquidity limitations, and improve index replication. The total number of constituents rose, and the weighting scheme was modified. As a provider of choice, S&P DJI also launched a focused index, the S&P Global Clean Energy Select Index, which consists of the top 30 clean-energy-related stocks derived from the broader S&P Global Clean Energy Index.

As part of the initial consultation in March 2021, the Index Committee proposed a follow up consultation for further enhancements to the index methodology. This was issued on Aug. 20, 2021, and the results were announced on Sept. 21, 2021. The confirmed changes are intended to improve transparency, enhance diversification, further reduce the index’s carbon footprint, and align the index methodology with market trends and sustainable investing norms.

October 2021 Rebalance Incorporates Part of the Announced Changes

Except for the inclusion of emerging markets-listed companies to increase diversification, all changes took effect after close on Oct. 15, 2021, coinciding with the semiannual review for the S&P Global Clean Energy Index and S&P Global Clean Energy Select Index. Exhibit 1 summarizes changes for these indices.

Improved Selection and Scoring Transparency (Effective October 2021)

A notable change in the October rebalance was the move toward a more systematic implementation of a core part of the methodology. Through the introduction of FactSet’s Revere Business Industry Classification System (RBICS) and S&P Global Trucost’s Power Generation Data, the new methodology seeks to improve transparency for selection and scoring of clean-energy-related companies. Clear thresholds have been defined, using power generation and revenue datasets, to determine a company’s involvement in clean-energy-related businesses. This is a positive step forward for the S&P Global Clean Energy Index series since its launch in 2007, as S&P DJI continues to review and adopt new capabilities to its indices.

Stricter ESG Standards (Effective October 2021)

The existing carbon screening rule was modified1 to improve its effectiveness, thereby reducing the carbon footprint. Previously, all eligible stocks, including those with lower exposure scores (0.75 and 0.5),2 were used to calculate the distribution of carbon-to-revenue footprints, which was subsequently used to determine cut-off thresholds at which companies were excluded. The revised rule states that this distribution will now be determined only by companies in the preliminary universe that have maximum clean energy exposure (i.e., exposure score 1). This change lowers the average and narrows the carbon footprint distribution, which in turn results in a lower and stricter cut-off threshold.

In addition to modifying the carbon screen, S&P DJI announced the introduction of exclusion criteria (Sustainalytics Business Activity Screenings, Sustainalytics Global Standards Screening, and Media and Stakeholder Analysis Overlay) to monitor for controversial behavior, involvement in specific business activities, and adherence to international norms and standards. The impact of these screens is shown in Exhibit 3.

Emerging Markets-Listed Stocks to Become Eligible (Effective April 2022)

While the scope of the index objective will remain the same, the consultation results confirmed the expansion to include emerging markets-listed companies. This change will only apply to the S&P Global Clean Energy Index and will take effect starting April 2022. Once effective, emerging markets could represent close to 15% of the index, and we anticipate the index target constituent count to rise to 100, based on preliminary projections. While this could be subject to change, we also expect the number of exposure score 1 stocks to rise, which would lead to a higher overall exposure to clean energy (index weighted average exposure score estimated to be 0.95).

The clean energy segment continues to be in the spotlight with increased spending on renewable power3 required to meet global climate change objectives. As this segment continues to grow, the evolution of the S&P Global Clean Energy Index Series offers a pure, liquid, and transparent exposure to clean energy.

1    The carbon-to-revenue footprint standard score is calculated for each stock in the preliminary universe. The score is calculated by subtracting the mean carbon-to-revenue footprint of all preliminary universe stocks with an exposure score of 1 as of the rebalancing reference date from each stock’s carbon-to-revenue footprint, and then dividing the difference by the standard deviation (also determined based on preliminary universe stocks with an exposure score of 1). The top and bottom 5% are excluded from the mean and standard deviation calculations. Companies with a score greater than 3 will not be eligible for inclusion.

2    All companies in the S&P Global Clean Energy Index universe are assigned exposure scores that denote their involvement in clean-energy-related businesses. An exposure score of 1 is assigned to companies with maximum clean energy exposure, 0.75 to companies with significant clean energy exposure, 0.5 to companies with moderate clean energy exposure, and 0 to companies with no exposure.

3    Financial Times – IEA warns spending on clean energy must triple to curb climate change.

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

Volatility Returned in Q3 2021 with Latin American Equities Posting Mixed Results amid Political and Economic Uncertainty

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Silvia Kitchener

Director, Global Equity Indices, Latin America

S&P Dow Jones Indices

Latin American equities had a rough Q3 2021, as the S&P Latin America BMI fell 14.7% in USD terms, driven by a steep drop in Brazilian equities and the U.S. dollar strengthening against local currencies. This weak result offset sizable gains from earlier in 2021, leaving the regional benchmark with a 7% loss YTD. However, on a 12-month horizon, the S&P Latin America BMI remained up 25.4%, outperforming the S&P Emerging BMI by about 5%.

While recent political uncertainty and civil unrest in the region have contributed to these results, on a global perspective, events abroad also have had an impact on equities, with emerging markets being the most affected. The S&P 500® ended the quarter nearly flat, up 0.6%, after reaching new records during late August and early September. Uncertainty over China’s Evergrande Group’s debt negotiations also had a negative effect on global markets; the S&P/BMV China SX20 lost 15.7% and the S&P Emerging BMI decreased 6.2% during Q3.

However, at a country level, results were mixed. The countries that performed the best during Q3 were Argentina, Colombia, and Mexico, which had positive returns in local currency as demonstrated by the S&P MERVAL Index (24.0%), the S&P Colombia Select Index (8.7%), and the S&P/BMV IRT (2.8%), respectively. The case of Argentina is particularly noteworthy, with the S&P MERVAL Index posting solid returns of 51.0% in local currency and 28.7% in U.S. dollar terms YTD, making it an outlier in the region. On the flip side, the S&P Brazil BMI and the S&P/BVL Peru Select 20% Capped Index were the underperformers of the group in Q3, down 13.9% and 4.9%, respectively. Chile’s S&P IPSA was nearly flat for the quarter.

All sectors across the S&P Latin America BMI posted negative returns in Q3. Procyclical sectors, such as Consumer Discretionary, Information Technology, and Materials, were the most affected, losing 32.6%, 28.2%, and 21.4%, respectively. Defensive sectors, such as Real Estate and Utilities, had better relative performance, losing only 12.7% and 7.8%, respectively. Lastly, the sole bright spot during the quarter from the sector perspective was Communication Services, which ended nearly flat.

Spotlight: Factor Indices in Brazil and Mexico

In times of high volatility, it is interesting to see how different factor indices perform under current market conditions. Perhaps unsurprisingly, we saw that in Brazil and Mexico, value, low volatility, and risk-weighted indices performed best in Q3, as lower volatility and value-oriented companies were in favor in a generally risk-off environment. In Q3, the S&P/BMV IPC CompMx Enhanced Value Index gained 2.3% in MXN, while the S&P/B3 Enhanced Value Index returned -1.9% in BRL.

Shifting focus to the longer term, we see that the majority of factor indices outperformed the broader market over the past 10 years, illustrating the benefits of using a non-market-cap-weighted indexing approach.

As the end of the year approaches, many risks are still clouding equity markets in Latin America. The continued spread of COVID-19 variants continues despite increased vaccination rates. Important local elections that will shape the new policies of several countries in the region are also slated to occur. Stay tuned for what promises to be an exciting year end in the region.

For more information on how Latin American benchmarks performed in Q3 2021, read our latest Latin America Scorecard.

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

Global Islamic Benchmarks Near Flat in Q3 2021, Narrowly Trailed Conventional Benchmarks YTD

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John Welling

Senior Director, Head of Global Equity Indices

S&P Dow Jones Indices

Global equities retreated, declining 1% during Q3 2021, 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, declined similarly, each losing 0.8% during the period.

While the quarterly figures narrowly favored the Islamic indices, their YTD performance lagged, in part due to strength in the Financials sector. All major regional conventional benchmarks returned positive performance YTD, while the Shariah-compliant DJIM World Emerging Markets Index and DJIM Asia/Pacific Index declined.

Strength in Financials Sector Drives Underperformance of Shariah Indices YTD

While global equities enjoyed broad gains YTD, sector drivers helped explain a majority of the underperformance of Shariah benchmarks. Financials—which is nearly absent from Islamic indices—gained 21.1% YTD, explaining a majority of the performance differential, while weights in Energy and Health Care also played a role in the relative underperformance.

Exhibit 2 displays the sector returns along with the effect of over- and underweight sector allocations, as well as the impact of specific stock exclusions from the S&P Global BMI Shariah compared to its conventional counterpart. Strong gains of stocks within the Communication Services sector—which contains Alphabet and Facebook—helped offset some of the sector-driven underperformance.

MENA Equities Continued to Gain YTD

MENA regional equities gained considerably YTD, as the S&P Pan Arab Composite advanced 31.0%. The S&P Saudi Arabia BMI led the way in the region, gaining 37.5%, followed by the S&P United Arab Emirates BMI, up 35.9%. The S&P Bahrain BMI led the way in the region in Q3, gaining 10.9%, followed by the S&P Kuwait BMI, which gained 7.9%. All MENA country indices remained positive YTD, except for the S&P Egypt BMI, which was down just 0.4% YTD.

For more information on how Shariah-compliant benchmarks performed in Q3 2021, read our latest Shariah Scorecard.

This article was first published in IFN Volume 18 Issue 41 dated the 13th October 2021

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

What’s the Role of the S&P 500 in the Global Opportunity Set?

As Asian investors consider potential shifts in inflation and macro trends, could a closer look at U.S. markets through the lens of the S&P 500 help them identify potential opportunities abroad? Hamish Preston and Jason Ye of S&P DJI join Erik Norland of CME Group to explore the potential risk/return and diversification benefits of U.S. equities.

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

Performance Update of the S&P/TSX Capped REIT Income Index

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Smita Chirputkar

Former Director, Global Research & Design

S&P Dow Jones Indices

Introduced in April 2017, the S&P/TSX Capped REIT Income Index is designed to serve as an income-producing Canadian REIT strategy by overweighting REITs with higher risk-adjusted income distribution yields. The Canadian REIT sector experienced a boom prior to the onset of the pandemic as the index peaked1 on Feb. 20, 2020, its then-highest value since its inception. The index gained 86.67%2 since its bottom on March 23, 2020, attaining an all-time high on Sept. 8, 2021. In this post, we will take a closer look at the performance characteristics of the index since our last review.

Exhibit 1 shows that the S&P/TSX Capped REIT Income Index generated higher total returns than its benchmark, the S&P/TSX Composite, over the period studied. However, due to higher volatility, its performance was similar on a risk-adjusted basis. Historically, the S&P/TSX Capped REIT Income Index exhibited higher best monthly returns, average monthly returns, and maximum rolling 12-month returns compared with the benchmark.

Exhibit 2 shows that the index outperformed the benchmark 75% of the time in down markets3 and underperformed the benchmark 55% of the time in up markets. However, the magnitude of outperformance in down markets was pronounced, generating a monthly average excess return of 1.29% over the benchmark. Thus the strategy exhibited downside protection characteristics despite experiencing greater volatility.

Exhibit 3 shows the calendar year performance of the S&P/TSX Capped REIT Income Index versus the benchmark. We can see that the strategy outperformed the underlying broad market in 10 out of 16 years.

Higher Yield Than the Broad Market

From December 2006 to September 2021, the S&P/TSX Capped REIT Income Index generated an average historical dividend yield of 6.1%, compared with 2.8% for the benchmark.

Current Composition

As of close of Sept. 30, 2021, the index had 19 constituents, and the maximum weight of any security was 10.6%. Retail REITs topped the list at 33% of the index, followed by Residential REITs at 26% (see Exhibit 6).


Canadian REITs were particularly hard hit during the pandemic, but have recovered steadily, recently reaching a new high on Sept. 8, 2021. The index offers a differentiated high yield REIT exposure in a low yield environment, while also providing exposure to the growth of the REIT sector. Over the long term, REITs have outperformed the broader equity market in Canada on an absolute basis, while providing downside protection during down markets.

1 Index values measured on a TR basis.

2 From March 23, 2020, to Sept. 30, 2021.

3 Down market: When S&P TSX Composite index has negative monthly return. Up market: When S&P TSX Composite index has positive monthly return

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