Indexology^® Blog

After global equity and bond markets soared in 2023, this year began on somewhat rockier ground. Valuations were more stretched, dispersion was rising and roughly half of the world’s population was facing uncertain election results. Many concluded that, among other predictions, active management was set to shine in 2024.

The performance of actively managed funds is assessed in S&P Dow Jones Indices’ regular SPIVA^® Scorecards, and the results for the first half of this year are now available in a single, global report. In two of the largest fund categories —namely global and U.S. equities—it seems that the wait for the long-promised “stock-pickers’ market” continues.

Equity markets, admittedly, did not offer easy pickings in H1 2024: a whopping 75% and 73% of S&P 500^® and S&P World Index constituents, respectively, had a lower return than the indices themselves. Active fund managers operating within those markets did not fare much better. Exhibit 1 shows the percentage of underperforming active equity funds in both categories. Although U.S.-domiciled funds came closest to changing the story, in both global and U.S. equity categories, a majority of actively managed funds underperformed.

But bond managers did have more to boast about. The winds were more in their favor, too. At the start of 2024, the U.S. and major European sovereign yield curves were inverted, meaning an intermediate-term manager could seek higher yields at typically lower risk (if measured by duration) by holding shorter-dated bonds. Further, both investment grade and high yield credit spreads compressed in H1 2024, meaning that managers taking on a little more credit risk than their benchmark could have expected to be rewarded. In many (but not all) of the largest fixed income categories, a majority of actively managed funds outperformed.

To learn more about the market factors and dynamics that helped to determine these results, and to dig deeper into more than 50 different global active fund categories, the full results are available in the SPIVA Global Mid-Year 2024 Scorecard 

On Oct. 1, 2024, a new presidential administration took office in Mexico amid a series of constitutional reforms and a new political landscape. Political change can create uncertainty, so it is useful to analyze past periods to identify trends and gain insights on the effects of similar events.

How did the S&P/BMV IPC and the MXN/USD exchange rate perform during the outgoing administration and how did this compare to other periods? Exhibit 1 shows a summary of the performance of the S&P/BMV IPC and the MXN/USD exchange rate since 2000.

The S&P/BMV IPC has delivered varied but positive returns in the past four administrations. We can observe that the annualized performance of the S&P/BMV IRT increased significantly in the past administration, going from 1.9% to 7.2%, though still below what we saw in the 2000s. In terms of volatility, the past six years saw a slight increase compared to the previous period; however, if we look at the return/risk ratio, the additional risk was offset by higher returns.

The exchange rate closed with a marginal appreciation when compared to its 2018 level, although just before the 2024 elections, it had appreciated by over 16%. In any case, this is noteworthy as this was the first administration in which the Mexican peso did not depreciate.

From a sector perspective, there have been notable changes in the largest sectors these past six years. Communication Services continued to shrink in share, from a high of 37% in 2006 to 10% in 2024. In the period from 2018-2024, Materials and Industrials gained 6% and 4%, respectively, while Financials decreased by 3% and Consumer Staples remained flat at 33%.

The first year of a new administration in Mexico tends to be eventful, as there are often major changes in policy. In addition, this can be exacerbated by external events, such as a global financial downturn or the U.S. presidential elections.

In Exhibit 3 we see the cumulative performance of the S&P/BMV IRT during the first year of each administration since 2000. Though each administration faced its own challenges, one thing they all have in common is that the S&P/BMV IRT ended their first year with positive returns.

Exhibit 4 illustrates the exchange rate volatility during the first year of each administration. While many factors influence exchange rates it is interesting that the level of MXN/USD volatility ended each administration’s first year roughly where it started, despite some short-term bouts of volatility during the year. The most volatile first year of an administration was seen in the period from 2012-2013, where annualized 21-day volatility reached 21%.

In conclusion, an administration’s effect on the equity market and the exchange rate in Mexico is better observed from a long-term perspective, as high levels of volatility, which tend to be short-lived, can create uncertainty but not necessarily mark a trend. Insights gained from these analyses could help market participants make informed decisions in the face of change.

The ETF industry has hit a major milestone, reaching USD $10 trillion in assets under management in the U.S. Commentary on the rise of index-based or passive investing may be widespread, but it is harder to find estimates of how truly “passive” their holders are. Secondary market volumes offer a fascinating, important and complementary perspective.

Our new paper “The Liquidity Landscape: Trading Linked to S&P DJI Indices,” shows that volumes associated with listed products tracking S&P DJI’s indices dramatically exceed the corresponding USD 6.6 trillion level of listed index-linked assets,¹ with volumes almost doubling from four years ago to exceed USD 246 trillion in 2023.² Index-based products are increasingly among the most traded securities, with ETFs representing 42% of the most-traded U.S.-listed equity securities by U.S. dollar volumes as of 2023.

The S&P 500^® was the primary contributor to the volumes cited above and was associated with the largest number of distinct products. Volumes associated with the S&P 500 totaled approximately USD 224 trillion, the bulk of which was contributed by options and futures, as we observe from the left side of Exhibit 1. The right side of the exhibit shows volumes in indices derived from the S&P 500 such as our suite of sector or factor indices.

The S&P 500 ecosystem stands out because of its liquidity globally. The network of products tied to the S&P 500 or indices derived from it can form an interconnected web of pricing and trading activity through arbitrage mechanics or risk transference. For example, market makers in S&P 500-linked ETFs, which are listed in markets ranging from New Zealand to Brazil, might use futures to hedge their inventory positions. Or a holder of S&P 500 sector ETFs can weight them accordingly to replicate exposure to the benchmark. This same holder could use options to manage their downside risk or generate income from call overwriting. The resulting benefits in transparency and pricing efficiency stemming from these connections demonstrate the potential network effects of liquidity.

To better understand the behavior of such users of index-linked products, we can divide assets by volumes to arrive at an estimate of the average holding period among market participants.⁴ For example, for a fund with assets of USD 100 million, an aggregate annual trading volume of USD 200 million would imply an average holding period of six months. Exhibit 2 shows the distribution of assets across the S&P DJI universe by their respective trading frequencies: products with an average holding period of more than one year, one month to one year, one week to one month, and those with an average holding period of less than one week.

Exhibit 2 illustrates several notable observations. First, approximately 60% of assets were associated with products with an average holding period of less than one month, confirming the presence of some relatively active users. Second, options and futures along with leveraged ETPs tended to have shorter average holding periods, indicating heavier usage of these product types among shorter-frequency investors. Finally, while ETPs tended to have longer holding periods, only roughly 20% of ETP assets were associated with products with an average holding period of more than one year. The holders of index funds should not always be equated with “passive” investors.

The S&P DJI ecosystem has benefited from the network effects of liquidity offered by market participants operating on a wide range of trading frequencies, resulting in a creative cacophony of perspectives. This may provide long-term investors with greater confidence in the prices they experience, while more active traders may benefit from increased liquidity. Find out more about how our robust trading ecosystems are promoting price transparency, market efficiency and confidence all around the world in “The Liquidity Landscape: Trading Linked to S&P DJI Indices.”

¹ See S&P Dow Jones Indices Annual Survey of Assets, Dec. 31, 2023.

² See “A Window on Index Liquidity: Volumes Linked to S&P DJI Indices,” S&P Dow Jones Indices, Aug. 29, 2019.

³ Index equivalent trading volume (IET) reflects the economic exposure to the index that is being transacted at the time a trade occurs; it is determined by the instrument’s short-term responsiveness to movements in the underlying index. See Appendix of “The Liquidity Landscape: Trading Linked to S&P DJI Indices”, S&P Dow Jones Indices, Sept. 16, 2024.

⁴ We caution that any security can have a mix of investors who trade with different frequencies.

See how the S&P/B3 Ingenius Index provides the Brazilian market with a dynamic lens for tracking global innovation. 

See how the S&P/BMV Ingenius Index provides the Mexican market with a dynamic lens for tracking global innovation.