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The S&P Systematic Global Macro Index Outperformed YTD

Infrastructure to Strengthen a Portfolio in Volatile Times

Exploring the S&P 500 ESG Leaders Index – Goldilocks’ Choice of the S&P ESG Index Series

Ship Ahoy: Introducing the S&P GSCI Freight Indices

Time Sensitivity and Volatility Management

The S&P Systematic Global Macro Index Outperformed YTD

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Berlinda Liu

Former Director, Multi-Asset Indices

S&P Dow Jones Indices

U.S. equities rebounded in July thanks to earnings from mega-cap technology and major oil companies. The S&P 500® surged 9.2%, posting its best month since November 2020 and reversing its 8.3% loss in June. Nevertheless, the S&P 500 remains in correction territory, down 13.1% from its Jan. 3, 2022, record high.

The S&P Systematic Global Macro Index (SGMI) has outperformed the equity market YTD. While the S&P 500 was down 12.6% YTD, the multi-asset trend following index rose 17.4%, similar to the average returns of commodity trading advisors (CTAs) as measured by the SG CTA Total Return Index. In the 12-month period, the SGMI outperformed the broad equity benchmark and the CTA index (see Exhibit 1).

The SGMI is designed to measure a trend-following strategy that takes a long, short or zero position in 37 constituents across six sectors (equities, fixed income, short-term interest rate, foreign exchange, commodities and energy). The trend signal for each constituent is evaluated and established individually via regression. Sectors and constituents are weighted so that they contribute equally to the index risk. The index uses leverage to achieve its 17.5% target volatility.

The SGMI is rebalanced monthly. Comparing its allocation in early August with that at the end of July, we can see the index is shifting from commodities to equities (see Exhibit 2). This is not surprising as it is designed to capture and respond to the latest trend in the market. The index continues to short government bonds but has scaled back the size of these short positions.

It remains unclear whether the market has completely shaken off concerns over inflation and rising rates. The S&P SGMI may help market participants seeking to ride market trends via a diversified multi-asset approach.

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

Infrastructure to Strengthen a Portfolio in Volatile Times

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Kieran Kirwan

Director, Investment Strategy


Key Observations:

  • Infrastructure owners and operators provide real asset exposure in inflationary environments
  • Opportunities for yield on infrastructure continue to be relatively strong
  • Infrastructure companies have delivered consistent operating margins over time

How can investors power through the rising inflation, low real yields and sluggish profits in today’s volatile markets? The answer may be pure-play infrastructure companies. By owning critical products and services, these companies can raise prices to offset inflation, pay reasonable dividends, and maintain consistent operating margins.

Fight Inflation Fears with Infrastructure

Inflation, as measured by the consumer price index (CPI), is at the highest level in 40 years,1 and New York Fed data on one‑year inflation expectations suggests that price increases could persist. Inflation can have an adverse impact on growth and profitability across many sectors, but owners of real, essential service assets like energy and water may buck the trend by increasing prices during inflationary times.

Going back to 2008, pure-play infrastructure has outperformed the S&P 500 in inflationary periods. When year-over-year inflation exceeded the average of 2.25%, 25 bps above the Fed target rate, the Dow Jones Brookfield Global Infrastructure Composite Index outperformed the MSCI ACWI Index by 1.1% and the S&P 500 by 0.4% monthly and 13% annually, on average.

Hungry for Yield

Finding yield has been challenging in the low interest rate environment since 2008. The addition of inflation has made this even more acute. Investors looking for yield may be skeptical of fixed income as the Fed starts increasing rates, since loss of principal could easily offset gains from interest. Further, high inflation erodes real rates of return. While fixed income is principal protected, there is no participation in economic growth.

Infrastructure companies often offer attractive yield and potential capital appreciation. Since 2014, infrastructure owners and operators have provided higher yield than the S&P 500 and the 10-year U.S. Treasury.

Consistent Performance Amidst Uncertainty

Uncertainty is rising as markets grapple with multiple headwinds. Many companies are facing margin compression and recent earnings results showed sales growing faster than earnings, reflecting pressure on operations.

Against this backdrop, investors may put a premium on consistency and stability. Infrastructure owners and operators typically have long-term agreements that help deliver consistent fundamental results. Operating margins are historically less volatile than the MSCI ACWI Index, S&P 500 and the S&P 500 Energy Index, providing some stability in uncertain times.

1 Source: U.S. Bureau of Labor and Statistics, “Consumer Price Index,” April 2022.


This information is not meant to be investment advice. There is no guarantee that the strategies discussed will be effective. Investment comparisons are for illustrative purposes only and not meant to be all-inclusive.

 Any forward-looking statements herein are based on expectations of ProShare Advisors LLC at this time. ProShare Advisors LLC undertakes no duty to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Investing involves risk, including the possible loss of principal.

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

Exploring the S&P 500 ESG Leaders Index – Goldilocks’ Choice of the S&P ESG Index Series

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Stephanie Rowton

Director, Head of Sustainability Indices EMEA

S&P Dow Jones Indices

S&P Dow Jones Indices (S&P DJI) launched the S&P 500® ESG Leaders Index in February 2022. The index sits within our S&P ESG index offerings, which has been designed to offer different solutions to reflect the wide range of ESG index investment needs. Sustainable investing continues to gain traction for a multitude of reasons—one being a desire to align investments with investor values. However, despite a surge in the prominence of ESG investing, clients are all at different stages of their ESG journey, meaning there is no “one-size-fits-all” solution.

The S&P ESG index offerings enable users to access a broad and diversified index benchmark while removing:

  • Business activities that may be deemed controversial;
  • Violators of UNGC principles; and
  • Companies that perform poorly relative to their industry group peers when considering E, S and G criteria.

The S&P 500 ESG Leaders Index sits between the less prohibitive exclusions of the S&P 500 ESG Index and the stricter exclusion criteria of the S&P 500 ESG Elite Index. Some may consider it Goldilocks’ choice of the S&P ESG index offerings—not too hot, not too cold, but just right.

Exclusions Follow a Rules-Based Methodology

The April 2022 rebalance resulted in roughly one-fifth (21%) of companies within the S&P 500 being excluded from the S&P 500 ESG Leaders Index. Of those excluded, 45% were removed due to having an ineligible S&P DJI ESG Score (see Exhibit 2). This is because the S&P 500 ESG Leaders Index removes the companies in the bottom 25% by S&P DJI ESG Score in the global GICS industry group. By implementing this screen, the index removes global ESG laggards when compared to their industry group peers.

Unlike the S&P 500 ESG Index, the S&P 500 ESG Leaders Index includes screens for shale energy and nuclear power. Of the exclusions, 8% were due to these screens, resulting in companies such as ConocoPhillips, Marathon Oil, Occidental Petroleum and NextEra Energy all being removed.

Gambling is another screen within the index, resulting in the removal of three companies: MGM resorts International, Las Vegas Sands and Caesars Entertainment.

Eligible ESG Credentials But Not Selected

The S&P 500 ESG Leaders Index targets the top 50% of companies by S&P DJI ESG Score in decreasing order within each GICS industry group. This results in several companies being eligible for inclusion, but not selected. For example, Warner Brothers, J.M. Smucker and American Airlines are all eligible for selection and are included in the S&P 500 ESG Index, which targets the top 75% of companies by S&P DJI ESG Score. However, they do not hit the 50% threshold needed for inclusion within the S&P 500 ESG Leaders Index.

Similar Historical Performance with a Stronger Carbon Profile

Despite having stricter exclusions than the S&P 500 ESG and more lenient thresholds than the S&P 500 ESG Elite Index, the S&P 500 ESG Leaders index still offers a diversified and broad sector allocation with strong ESG credentials. The index also offers a lower carbon footprint, lower weighted average carbon intensity and lower exposure to fossil fuels than the S&P 500 (see Exhibit 4).


When it comes to ESG indices, there is no one-size-fits-all solution—what is right for one investor does not necessarily fit the needs of another. As investor attitudes toward ESG investing continue to differ, it remains essential for market participants to understand their ESG conviction to choose a solution that enables them to reflect their beliefs in their investment needs. The S&P 500 ESG Leaders Index has been designed for those who seek the broad and diversified exposure typically offered by the S&P 500, while also taking a harder stance when it comes to excluding unsustainable business activities.

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

Ship Ahoy: Introducing the S&P GSCI Freight Indices

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Fiona Boal

Managing Director, Global Head of Equities

S&P Dow Jones Indices

On Aug. 1, 2022, S&P Dow Jones Indices (S&P DJI) launched a series of S&P GSCI Freight Indices, the first of their kind in the market and an expansion of the single-commodity offering of indices based on the S&P GSCI. The S&P GSCI Freight Indices are designed to provide reliable and publicly available performance benchmarks for the largest dry bulk freight markets. The indices are based on the Baltic Exchange’s monthly and quarterly forward freight agreements (FFAs). The index series includes the following.

As the main shipping derivative instrument, FFAs track the average daily chartering cost (vessel income) for a standard-sized vessel that performs a voyage via one of the main shipping routes. FFAs are cash-settled futures contracts that are traded over the counter via voice brokers and are subsequently novated to exchanges such as SGX, ICE, CME and EEX for clearing and ongoing margin management. These contracts have traditionally been used by shipowners and commodity trading houses for hedging their freight exposure.

The dry bulk market is the largest of the shipping sectors and has the deepest and most liquid FFA market. The sector is dominated by two vessel types, Capesize and Kamsarmax (referred to as Panamax for legacy purposes). FFA volumes in these vessel types explain essentially all of the underlying physical dry bulk market flows, so indices based on these contracts are a logical first foray into the dry bulk market for financial industry participants.

  • Capesize: broadly the largest standard size of the dry bulk carriers. Vessels carry mainly iron ore and coal and are employed across a small number of routes, typically moving cargos from Australia and Brazil to China.
  • Panamax: the second-largest standard size of the dry bulk carriers. Vessels carry coal, grains and other agricultural products as well as iron ore, and minor bulks such as bauxite, alumina, copper, phosphate rock and cement.

Exposure to freight rates varies by vessel type and trade route, although in most cases, freight represents a noticeable percentage of the final value of a commodity. For example, on average, freight accounts for 20% of the overall cost of iron ore exported from Brazil to China. As a major component of the cost of raw materials, it is important for financial market participants to have access to replicable and investable dry bulk freight indices.

Disruptions to global supply chains over the past few years have put the global freight market in the spotlight, highlighting its important link in the chain of the world economy and contribution to international trade. Freight rates are driven by the balance between demand for seaborne trade and supply of cargo capacity. The former is correlated to economic activity and industrial production and is also affected by prevailing demand conditions in specific commodity markets. The latter depends on the size of the global fleet, its utilization rates and, as witnessed during the COVID-19 pandemic and more recently the Russia-Ukraine conflict, shocks caused by disruptions to the free movement of people and vessels.

As global market participants increasingly seek to diversify their investments and look for alternative vehicles to tap into the niche market segments, the S&P GSCI Freight Index Series could be a meaningful gauge of global economic activity, seaborne trade and individual commodity and geographic market dynamics.

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

Time Sensitivity and Volatility Management

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Craig Lazzara

Former Managing Director, Index Investment Strategy

S&P Dow Jones Indices

We all know that in the long run, the U.S. stock market has performed very well, compounding at well over 10% per year for nearly a century. We also know that sometimes the market performs very poorly, as the S&P 500®’s 20% decline in the first half of 2022 reminds us. For an investor who has the luxury of time, the combination of long-term gains with occasional pullbacks is a feature, not a bug; short-term declines are at worst a nuisance, and at best a buying opportunity.

For some investors, however, time is a luxury they do not have. Individuals often have specific goals to which finite time horizons attach. Such investors can benefit from the equity market’s long-term strength, but may have above-average sensitivity to short-term declines.

Defensive factor indices can help resolve this tension. Factor indices in general are designed to indicize active strategies—i.e., to deliver in passive form a pattern of returns that the investor would otherwise have to pay active fees to obtain. Exhibit 1 shows the relative risk and return of several S&P 500-based factor indices. Given the risk/return profiles in the exhibit, we can classify factor indices as either risk enhancers or risk mitigators—mitigators to the left, enhancers to the right.

We think of Low Volatility as the quintessential risk mitigator. Exhibit 2 shows why, comparing two efficient frontiers, one constructed using the S&P 500 and bonds, and the other using the S&P 500 Low Volatility Index and bonds.

For the period summarized in Exhibits 1 and 2, Low Volatility outperformed the S&P 500, but with lower risk. It’s therefore not surprising that an efficient frontier using Low Volatility as the risky asset dominates a frontier using the S&P 500. A 60/40 equity/bond allocation using Low Volatility experienced both lower risk and higher return than a 60/40 mix using the S&P 500.

Importantly, time-sensitive investors could use Low Volatility to improve their risk/return tradeoff. A 60/40 mix of the S&P 500 and bonds produced a total return of 8.3%, with a standard deviation of 8.8%. By using Low Volatility as the equity vehicle, the same return could have been achieved at a lower risk level (6.9%) and with a lower equity exposure (55%). Alternatively, using Low Volatility as the equity vehicle would have increased returns to 9.3% with the same risk level. Indeed, regardless of the starting point, shifting any part of an equity allocation from the S&P 500 to the S&P 500 Low Volatility Index would have resulted in both a reduction in overall risk and an increase in return.

What is true of Low Volatility is also true of other defensive factors. Time-sensitive investors should consider the record of defensive factor indices in mitigating short-term declines while retaining the long-run benefits of equity exposure.

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