Indexology^® Blog

For more than 20 years, S&P DJI’s SPIVA^® (S&P Indices Versus Active) Scorecards have been evaluating active funds’ performance against their appropriate benchmarks on a biannual basis. The results of our regional SPIVA Scorecards continue to show that active outperformance is rare, especially over the long term.¹

Spanning across 11 regions, 54% of all equity funds underperformed across categories.² Not coincidentally, this result is consistent with the relatively benign 54% underperformance rate for our largest and most closely watched category of U.S. Large Cap Equity funds, which is on track for its lowest annual underperformance rate since 2022.

Outside of the U.S., there were additional bright spots, with Exhibit 1 showing that most Emerging Markets Equity funds outperformed, while International Equity and Global Equity funds had a slightly more difficult time beating their respective benchmarks.

Turning our attention to domestic equity managers across regions, 11 of our 17 reported domestic fund categories in Exhibit 2 posted majority underperformance in H1 2025. Results varied across regions; for example, only 17% of managers domiciled in Brazil underperformed the S&P Brazil LargeCap. Meanwhile, results were worse for South African managers, with 92% underperforming against the S&P South Africa 50. The 1-, 3- and 5-year underperformance rates for these funds and more are shown in Exhibit 2.

Offering perspective on the prospects for stock pickers globally, Exhibit 3 shows the percentage of constituents that beat the benchmark across categories. On average, 49% of stocks outperformed their respective benchmarks across regions. The 44% rate for the S&P 500^® notably displayed a significant improvement compared to 2023 and 2024, both challenging years driven by mega-cap dominance. The majority outperformance of Brazil domestic funds is perhaps consistent with the fact that 76% of stocks outperformed their benchmark.

Looking more broadly, in addition to better-than-average prospects for stock selection, regional allocation decisions may have mattered particularly for global equity managers, with the S&P World Ex-U.S. Index outperforming the S&P World by 9% in H1 2025. As observed in Exhibit 4, global fund managers may have benefited from an underweight to the U.S., which makes up 72% of the S&P World’s weight. Despite this tailwind, 58% of global managers still failed to outperform across regions, as demonstrated in Exhibit 1.

H1 2025 was a tale of two markets, while H2 has seen sustained outperformance of large caps, with the S&P 500 Equal Weight Index underperforming the S&P 500 by 6% as of Nov. 6, 2025. This may signal headwinds for active managers who underweight the largest stocks. Meanwhile, the turnaround in U.S. markets, with the S&P World outpacing S&P World Ex-U.S. Index by 2% over the same time period, may portend challenges for international and global equity funds. In the meantime, to find out more about the results of our SPIVA Mid-Year 2025 Scorecards across regions and asset classes, visit our SPIVA Library.

¹ Ganti, Anu and Lazzara, Craig, “Shooting the Messenger,” S&P Dow Jones Indices, November 2022.

² Calculated as the ratio of the number of funds underperforming YTD to the total number of funds at the beginning of the YTD period across all SPIVA regions.

Direct indexing separately managed accounts (SMAs) are gaining traction, especially among financial advisors serving affluent and high-net-worth clients. In their recent whitepaper, Cerulli Associates projects a five-year compound annual growth rate (CAGR) of 16% for direct indexing SMA assets—the highest among all investment vehicles considered.¹ In this blog, we unpack what is driving the growth of direct indexing SMAs and examine how advisors who use these solutions evaluate SMAs and their underlying indices.

Why Advisors Utilize Direct Indexing SMAs

Direct indexing SMAs are investment vehicles designed to allow users to track customized versions of well-known indices by owning the securities directly. This direct ownership creates opportunities for tax-loss harvesting, tilting for particular themes and accommodating specific client needs in other ways.

The wide range of potential applications of direct indexing SMAs may help advisors better serve their affluent and high-net-worth clients. Direct indexing SMAs traditionally require higher investment minimums compared to other investment vehicles but enable more optionality than mutual funds or ETFs.

What Matters Most to Advisors Considering Direct Indexing SMAs

When selecting a direct indexing equity SMA, financial advisors commonly focus on fees (69%), performance (41%), index methodology (37%) and index customization potential (34%), as shown in Exhibit 1.²

These priorities reflect direct indexing SMA users’ focus on cost efficiency, outcomes and the flexibility to shape portfolios around client-specific objectives.

Key Considerations for Evaluating the Underlying Index

In their review of a direct indexing SMA’s underlying benchmark, financial advisors commonly focus on quality of index design and methodology (75%), supporting content available on that index (63%), index data resources (50%), brand of the index provider (49%) and conversations with an index provider representative (37%), as shown in Exhibit 2.

Index providers with strong brand equity can be an important resource by supplying the above index information to advisors for client conversations. According to Cerulli, most financial advisors using direct indexing SMAs report using index performance data (90%), index design and methodology information (83%), and performance attribution analyses (82%)²—all of which are readily available and accessible from leading index providers.

Index providers “collaborate with us on index design; we use their data and [they] help raise awareness and education for direct indexing,” an executive at an asset manager told Cerulli.³

Cerulli reports that 31% of direct indexing SMA advisors actively engage with index providers, while 35% expect they will engage more in the future.² This growing trend underscores the potential for index providers to act as a key resource to advisors using direct indexing SMAs as they seek to improve their practices’ functions.

Opportunities for Direct Indexing SMA Users

The survey results suggest that direct indexing SMA users value index providers that can deliver both flexibility and education. Advisors in this segment may need resources that help explain to clients how and why a customized index may align with their objectives.

By providing accessible supporting content, robust data resources and opportunities for direct engagement, index providers offer resources that help these advisors differentiate their practices as direct indexing adoption continues to grow.

To learn more about how financial advisors are using direct indexing SMAs and working with index providers, explore the full Cerulli whitepaper, “Redefining the Role of Index Providers.”

¹ The Cerulli Associates whitepaper “Redefining the Role of Index Providers” was sponsored by S&P Dow Jones Indices. Please see page 4.

² Please see page 21 of Cerulli Associates’ “Redefining the Role of Index Providers.”

³ Please see page 5 of Cerulli Associates’ “Redefining the Role of Index Providers.”

The Middle East is a rapidly evolving region and one of its key growth areas has been factor indexing. The increasing adoption of these strategies has been driven by a desire for risk reduction, enhanced returns and cost efficiencies. This trend is evident not only in the adoption of single-factor styles but also in multi-factor approaches that combine single factors with low correlations for greater diversification.

The S&P GCC Composite Quality, Value & Momentum (QVM) Multi-Factor Index tracks companies within the GCC area—comprising Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates (UAE)—that exhibit the highest combined scores in quality, value and momentum. Utilizing a bottom-up approach, the index averages each constituent’s individual factor scores to produce a combined multi-factor score, identifying constituents that score highly, on average, across each factor.

Higher Risk-Adjusted Returns Relative to Single-Factor Indices

The combination of quality, value and momentum has the potential to be complementary, as each factor may react differently to various phases of the business cycle. Quality tends to be more defensive, value is generally pro-cyclical, while momentum often outperforms during sustained market trends. By harnessing these factors in tandem, there is a possibility for improved risk-adjusted returns compared to relying on any single factor alone.

Exhibit 2 illustrates this point, showing that the annualized return per unit of risk was higher for the multi-factor index compared to the single-factor indices over the long term (2008-2025).

Strong Long-Term Outperformance

The S&P GCC Composite QVM Multi-Factor Index outperformed each of the individual single-factor indices and its benchmark universe on both an absolute and risk-adjusted basis over the full back-tested period. In the shorter term, the index outperformed over one-, three- and five-year periods. A review of its capture ratios reveals that the index outperformed in upward-trending markets while maintaining moderate defensive qualities during downturns.

Diversification across the Economic Cycle

Most factors exhibit outperformance over the long run; however, none work all the time. Individual factor styles react in unique ways to the different phases of the economic cycles, outperforming at various stages. This is illustrated in Exhibit 4, which charts individual factor performance for each year between 2009 and 2024.

Low Excess Return Correlations

Some market participants may utilize single factors tactically, while others prefer multi-factor approaches that eliminate the need for precise timing. Exhibit 5 shows the historical low correlations of excess returns among the S&P GCC Single-Factor Indices. This characteristic is a key reason why combining these factors within the QVM methodology tends to result in a smoothing of risk-reward profiles.

Conclusion

By leveraging a multi-factor approach, there is a potential for diversification within the GCC markets versus the benchmark universe. The different factor characteristics such as the defensiveness of quality and the cyclical benefits of value across market cycles has helped to smooth performance for the S&P GCC Composite QVM Multi-Factor Index, with recent live and longer-term hypothetical back-tested performance showing enhanced risk-adjusted returns. A multi-factor strategy also has the potential to benefit from positive developments in the region. Additionally, those seeking to learn more about Shariah-compliant options may want to explore the S&P GCC Composite QVM Multi-Factor Shariah Index.

How are benchmarks like the S&P UBS Leveraged Loan Index and S&P UBS Western European Leveraged Loan Index helping bring transparency to one of the largest fixed income markets? Take a fundamental look at leveraged loans with Marco Pouw, S&P DJI’s Director of Fixed Income Indices.

Launched Sept. 23, 2024, the S&P Quality FCF Aristocrats^® Indices track companies that consistently generate robust free cash flow (FCF) over a specific number of years. FCF, which represents the cash remaining after a business meets its operational costs and capital investments, serves as a key barometer of company quality.

The S&P Quality FCF Aristocrats Indices were initially introduced across two universes: the S&P 500^® Quality FCF Aristocrats Index and the S&P Developed Quality FCF Aristocrats Index, which both require positive FCF for at least 10 consecutive years. Both indices have outperformed their respective benchmark universes over the one-year period since their launch and on a YTD basis in 2025. The S&P 500 Quality FCF Aristocrats Index notably outperformed during the tariff-related drawdowns, while the S&P Developed Quality FCF Aristocrats Index saw a slightly higher drawdown, reflecting the different responses to the economic backdrop across regions.

Over the long term, including hypothetical back-tested performance, both indices have consistently outperformed their benchmark universes, demonstrating strong absolute terms as well as impressive risk-adjusted performance.

An analysis of these indices across various macroeconomic environments, including hypothetical back-tested performance, shows that they have excelled in a range of regimes characterized by rising and falling inflation and growth. Historically, the S&P Developed Quality FCF Aristocrats Index outperformed or matched the S&P Developed Large MidCap in all four environments. The S&P 500 Quality FCF Aristocrats Index only underperformed the S&P 500 during periods of high growth and high inflation.

These indices aim to identify high-quality companies through FCF-based screening and selection metrics utilized in their methodology. Exhibit 4 examines the metrics that make up the FCF score for both indices, revealing that they exhibit higher return on equity (ROE), higher operating margins and lower financial leverage compared to their respective benchmark universes.

Quality can be assessed by various metrics; however, FCF has historically proven to be an effective lens for identifying high-quality companies. The S&P Quality FCF Aristocrats Indices have had a strong start, outperforming their benchmark universes since launch while also demonstrating positive risk-adjusted performance, robust fundamentals and defensiveness over longer back-tested periods.