Indexology^® Blog

Is there a mid-cap equity sweet spot? Take a fundamental look at the S&P MidCap 400, including key performance drivers, sector and revenue exposures, as well as a new sustainability screened index built on the S&P 400 with State Street Investment Management’s Ryan Reardon and S&P DJI’s Hamish Preston. 

The S&P USD Select Leveraged Loan Index is a new entrant in the leveraged loan landscape, developed to fill a critical gap in existing liquid leveraged loan index offerings that typically focus on the largest loans by market capitalization. This innovative index encompasses all USD-denominated fully funded term loans with a minimum facility size of USD 500 million and credit ratings below investment grade, providing a broader view of the market.

As the U.S. leveraged loan market surged to an estimated USD 1.5 trillion in July 2025, the diversity of borrowers expanded significantly, incorporating a wide range of loan types, credit qualities, spreads, covenants and other characteristics. This variety is often not fully captured when analyzing only the top 100 largest loans in the market. The back-tested performance of the index was positive over the last five years, as showcased in Exhibit 1.

This index not only provides a more holistic and representative view of the liquid leveraged loan market by including loans of USD 500 million and above, but also enhances sector diversification and risk/performance profile with a total of 930 constituents ending October 2025.

Examining the credit quality characteristics of loans beyond the top 100 by notional index value offers deeper insights into the broader market. These insights include tracking defaults of underlying loans, which serve as crucial early warning signs in the leveraged loan ecosystem—information that may be missed when focusing solely on the largest loans.

Additionally, potential risks such as credit deterioration become more evident with a larger dataset, allowing investors and market observers to make more informed decisions. The index also incorporates higher spreads into the overall mix, driven by the inclusion of smaller loans and lower average credit quality. Exhibit 2 illustrates the difference in credit quality between the top 100 loans in the S&P USD Select Leveraged Loan Index and the rest of the constituents as of October 2025.

The effects of broader loan inclusion also extend to sector profile, as the addition of lower notional value loans provides access to a wider array of business types within the index, as shown in Exhibit 3.¹ For an index that focuses on including lower credit quality borrowers, diversifying across industries can have a positive effect, not only for encompassing additional sources of performance but also for moderating risk.

In summary, the S&P USD Select Leveraged Loan Index offers a benchmark for measuring larger loans within the leveraged loan universe, without sacrificing the risk/performance balance and diversification qualities that result from the additional inclusion of smaller issuances. As the leveraged loan market continues to evolve and expand, indices that adopt a comprehensive view of the leveraged loan market will serve as essential tools for more informed investment decisions.

¹ The S&P USD Select Leveraged Loans Index follows the iBoxx Industry Classification Standard (iBICs). For further details, please see https://www.spglobal.com/spdji/en/landing/topic/ibics/

The recently launched S&P 500^® Quality FCF High Dividend Index measures high-dividend stocks supported by strong free cash flow (FCF), offering an approach that blends income generation and financial resilience. Companies that consistently generate excess cash may be better equipped to sustain and grow dividends, even during periods of market stress. This focus on income and FCF strength offers a framework for identifying healthier, more dependable companies with higher yields. In this blog, we will explore the index’s methodology, performance characteristics, dividend yield and positioning.

Methodology Overview

The index first excludes any company that has not maintained dividend payments for at least five consecutive years. Remaining constituents are then ranked by their FCF score, a composite of FCF margin and FCF return on invested capital (ROIC). These metrics reflect how efficiently revenue is converted into FCF (FCF margin) and how effectively capital is deployed to generate that cash (FCF ROIC). The top 50% of companies within each sector are selected to help ensure broad sector representation. From this subset, the 100 companies with the highest dividend yield are chosen and weighted according to their dividend yield. Exhibit 1 shows a snapshot of the index methodology.

Performance Comparison

Exhibit 2 illustrates that since April 2001, the S&P 500 Quality FCF High Dividend Index has outperformed the S&P 500 on both an absolute and risk-adjusted basis. On an absolute basis, it has delivered an annualized return of 10.35%, compared to 9.22% for the S&P 500. The index has also maintained comparable upside participation while offering stronger downside protection, as reflected in its upside and downside capture ratios of 95.9 and 85.7, respectively.

Dividend Yield Comparison

Exhibit 3 illustrates that, as of Oct. 31, 2025, the S&P 500 Quality FCF High Dividend Index had a yield of 3.59%—more than three times the S&P 500’s current yield of 1.15%. Exhibit 4 further highlights that the resulting 2.44% yield spread sits in the 97^th percentile since 2002, surpassed only during major market declines in February 2009, March 2020 and briefly in June 2024.

Defensive Characteristics

Exhibit 5 ranks the S&P 500’s historical monthly returns, groups them into quintiles from highest to lowest and then calculates the S&P 500 Quality FCF High Dividend Index’s average excess return within each quintile. This analysis highlights the index’s defensiveness: in the bottom quintile—when the S&P 500 delivered its weakest monthly returns—the index outperformed by an average of 0.8%.

Sector Comparison

Exhibit 6 shows that combining FCF-based quality metrics with high dividend yield has produced a broadly balanced sector profile on average, with 8 of the 11 GICS sectors staying within ±5% of the S&P 500 over the full period. The index currently exhibits meaningful overweights in Consumer Staples, Energy and Financials, and a notable underweight in Information Technology. This tech underweight likely reflects elevated sector valuations, which tend to suppress dividend yields and reduce representation in yield-focused strategies.

Conclusion

The S&P 500 Quality FCF High Dividend Index stands out as a distinctive dividend strategy, thanks to its methodology that combines FCF-based quality metrics with a focus on dividend consistency and high yield. Its historically wide yield spread relative to the S&P 500 is particularly relevant given the current market environment of anticipated rate cuts.¹ Over the long term, the index has outperformed the S&P 500, exhibited defensive qualities and maintained a more balanced sector profile than a typical dividend strategy.

¹ https://www.atlantafed.org/cenfis/market-probability-tracker

The S&P 500^® Christian Values Screened Index distinguishes itself by excluding companies from the S&P 500 that engage in certain activities that do not align with the Evangelical Christian Investment Framework defined by Bountiful Financial. This framework employs specific exclusions based on S&P Global Energy Horizons revenue-based business involvement screens,¹ catering to market participants who wish to uphold their religious values.

During each rebalancing, the index maintains the sector weights of The 500™ by redistributing the weight of excluded stocks to the remaining companies within the same GICS^® sector. This analysis examines the effects of excluding companies and the subsequent weight redistribution on the index’s performance over the one-year period ending Oct. 31, 2025. The findings of this analysis are summarized in Exhibit 1.

During this period, the S&P 500 Christian Values Screened Index outperformed The 500 by 0.61%. This outperformance is attributed to the stronger performance of the remaining companies after their weights were redistributed. However, the excluded companies collectively contributed 0.29% to the performance of The 500.

To fully understand the implications of these changes, it is essential to consider both the excess performance of the S&P 500 Christian Values Screened Index relative to the S&P 500 and the contribution of the excluded companies to the S&P 500’s performance. By subtracting the contribution of the excluded companies from the index’s excess performance, we arrive at a net impact of 0.32% from the weight distribution.

An interesting aspect to consider is the long-term historical performance of the excluded companies in comparison to The 500. This analysis can provide valuable insights into the impact of religious values-driven choices on index performance over time. However, it’s important to emphasize that the performance of these companies can fluctuate, and the S&P 500 Christian Values Screened Index is not specifically designed to outperform the S&P 500.

Exhibit 2 illustrates the historical performance of the five highest-weighted excluded companies over the past decade.

Only Eli Lilly & Company, which was excluded for its involvement with stem cells, outperformed the S&P 500, achieving an excess performance of 707.21%. In contrast, the other four companies underperformed the index: RTX Corporation and UnitedHealth Corporation, excluded due to involvement with blinding laser weapons and abortion, respectively, underperformed by 22.43% and 35.39%, respectively. Additionally, Johnson & Johnson, also excluded for its association with stem cells, underperformed by 140.98%. Furthermore, Wells Fargo & Company, which was excluded due to its involvement with predatory lending, underperformed The 500 by 191.06%.

In summary, the S&P 500 Christian Values Screened Index offers a view into the performance of companies that align with specific religious values. The back-tested performance of the index underscores the significance of weight redistribution and the contributions of both included and excluded companies. This careful construction could help market participants to understand the dynamics of index performance while adhering to religious values-centric approaches.

¹ See the S&P 500 Christian Values Screened Index Methodology for more information.

Prior to the start of 2025, the S&P SmallCap 600^® outperformed the Russell 2000—another prominent small-cap U.S. equity index—in 20 of the full calendar years to December 2024. However, the S&P SmallCap 600 has underperformed the Russell 2000 by 9% YTD, putting it on track to record its worst year of relative performance since its launch in October 1994 (see Exhibit 1). This reversal reflects an unusual market phase in which quality has fallen out of favor and risk appetite has grown, fueling what could be described as a “junk rally.”¹

Historically, the S&P SmallCap 600’s quality-by-design construction has contributed to its outperformance.² Unlike the Russell 2000, new additions to the S&P SmallCap 600 must have a history of positive earnings,³ giving the index a statistically significant tilt toward the quality factor. Exhibit 2 shows that this helped to explain the S&P SmallCap 600’s relative performance: the S&P SmallCap 600 typically outperformed the Russell 2000 by a greater amount in years when the average monthly quality-minus-junk (QMJ) factor performance was higher.

However, the performance associated with quality has been lower in recent times. Over the past three years, average monthly QMJ returns were negative (see Exhibit 3) as investor sentiment rotated toward the lower-quality segment of the market. This shift appears to have created headwinds for the S&P SmallCap 600 whose quality tilt limited its weight in the most speculative performers, potentially driving the Russell 2000’s recent performance gains.

A Brinson performance attribution sheds further light on the S&P SmallCap 600’s underperformance so far in 2025. Constituent membership accounted for most of the index’s lag, with four industry groups of Materials, Health Care and Industrials collectively contributing -4.7% to the total effect (see Exhibit 4). In each of these sectors, the attribution suggests that leadership came from companies excluded from the S&P SmallCap 600 due to weaker fundamentals or inconsistent profitability.

A similar pattern emerged during the COVID-19 pandemic, when sharp shifts in sentiment and rapid rebounds disproportionately rewarded lower-quality companies.⁴ In those episodes, the S&P SmallCap 600’s earnings screen also limited weight in the most speculative names driving performance, creating short-lived performance gaps versus the Russell 2000 (see Exhibit 2). When market sentiment later rebounded in 2021 toward a preference for profitability, the S&P SmallCap 600 recovered more strongly than its peer index. Recent shifts toward higher-risk, lower-quality stocks reflect comparable swings in relative performance between the two indices.

In summary, the S&P SmallCap 600’s relative performance so far in 2025 highlights the importance of index construction and its impact on index characteristics. In a market driven by risk over quality, it is somewhat unsurprising that the S&P SmallCap 600’s significant quality tilt did not prove to be a tailwind. Yet, history reminds us of the potential outperformance effects of incorporating an earnings screen to distinguish between small companies that have never posted positive earnings and those that have.⁵

The author would like to thank Cristopher Anguiano for his contributions to this blog.

¹ “It’s a junk rally.” Financial Times. Oct. 29, 2025.

² See Anguiano, Cristopher. “Quality by Design: A Deep Dive into the S&P SmallCap 600.” S&P Dow Jones Indices. July 30, 2025.

³ For full details of the S&P SmallCap 600 Index methodology, please see S&P U.S. Indices Methodology. For full details of the Russell 2000 methodology, please see Russell US Equity Indexes.

⁴ See Preston, Hamish. “S&P SmallCap 600: A Pandemic Case Study.” S&P Dow Jones Indices. Jan. 26, 2022.

⁵ See Preston, Hamish. Fei Wang and Sherifa Issifu. “Celebrating 30 Years of the S&P SmallCap 600^®.” S&P Dow Jones Indices. Oct. 31, 2024.