IN THIS LIST

ESG Survey: Making ESG mainstream in Asian portfolios

U.S. Equities Market Attributes December 2020

S&P Latin America Equity Indices Quantitative Analysis Q3 2020

ETF Transactions by U.S. Insurers in Q2 2020

Investment in Innovation: Opportunities for Potential Outperformance across the Market-Cap Spectrum

ESG Survey: Making ESG mainstream in Asian portfolios

While sustainable investment themes and practices are making steady in-roads across the region, the pace would increase with greater asset choice and standardised data, finds the latest AsianInvestor / S&P Dow Jones Indices ESG poll.

The pandemic has proven a time to shine for mandates that invest with ESG principles in mind. Fueled by an accelerated appetite for sustainable funds in Asia, Morningstar data for the third quarter of 2020, for example, showed a record high $8.7 billion of net inflows. This helped total ESG fund assets in Asia to reach $25.1 billion, up 75% from the previous quarter.

Investing through an ESG lens has become more common in line with growing evidence that companies with good characteristics are expected to be more resilient during a crisis. Yet it is easier said than done to find relevant investments, integrate ESG in decision making and evaluate different managers and strategies.

To assess the tangible influence of ESG on portfolios and on potential drivers for future engagement, a new survey by AsianInvestor, in collaboration with S&P Dow Jones Indices (S&P DJI), gathered insights from 85 senior investment executives in October and November 2020.

Key take-aways from these government entities, insurers, pension funds, private banks and other investors – across, Hong Kong, Taiwan, Australia, South Korea, Japan, Singapore, Thailand, Malaysia, Indonesia, the Philippines and India – include:

  • Just over 70% have less than 10% of their current AUM invested in ESGrelated mandates
  • Amid the pandemic, 49% of investors have either already increased their exposure to ESG funds, or plan to – however, 46% of respondents said Covid-19 has made no difference to their ESG-related exposure
  • The two key drivers to invest based on ESG factors are to improve returns and add longer-term portfolio resilience
  • Environmental themes will see the biggest inflows in 2021 – especially clean energy and lower carbon emissions
  • More standardised ESG data would have the biggest impact in encouraging investors to boost their ESG exposure
  • Traditional metrics remain the preferred approach to assess different ESG funds – notably, the track record of the investment strategy and fund performance over the benchmark

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U.S. Equities Market Attributes December 2020

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Howard Silverblatt

Senior Index Analyst, Product Management

KEY HIGHLIGHTS

U.S. Equities Market Attributes December 2020

MARKET SNAPSHOT

My personal commentary is based oncrunching thenumbers, connecting the dots, making some observations, and presenting some possible future scenarios, hopefully based on the statistics, but as Mark Twain said, There are three kinds of lies:lies, damned lies, and statistics.I’ll leave predicting the COVID-19spread, treatment, consumer and business reaction, andpoliticalimpact to others, but the statisticsas I’ve seen them over more than43 years at S&P DJIsay we are paying a lot for expected earningseven if we get the earnings we expect. Specifically, 2021 is projected (consensus operating estimates) to post a record year, as treatment fully overtakes spread and closures, with the forward P/E at23andthe trailing 12-month P/E at30. Even if we get those record earningsan expected 23 over a year awayjustifying that much of a premium is unprecedented. Maybe the new post-COVID-19economy couldjustify it, and maybe crunching the numbers has made me focus too much on the underlying data, so I leave it to the market to justify and set the level. From the Feb.19, 2020, pre-COVID-19 closing high (3,386.15), the S&P 500 has posted 20 new closing highs (33 YTD, as it closed the year witha high, at 3,756.07; the eighth time since 1928 that a year has ended in a high), closing up 10.92% from the pre-COVID-19highand up 16.26% YTD(18.40% with dividends), after last year’s gain of 28.8% (31.49%). All I can say is, it’s been a heck of a run.


S&P Latin America Equity Indices Quantitative Analysis Q3 2020

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Michael Orzano

Senior Director, Global Equity Indices

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Silvia Kitchener

Director, Global Equity Indices, Latin America

S&P Latin America Equity Indices Commentary: Q3 2020

Overall, Latin American equities remained flat (-0.2%) in USD terms, as measured by the S&P Latin America BMI, a broad, regional index designed to measure the performance of 289 stocks from Brazil, Chile, Colombia, Mexico, and Peru. However, the S&P Latin America 40, representing the 40 largest (by market cap) and most liquid stocks, dropped a full 2.0% for the quarter amid the continued ravaging of COVID-19 on public health and the local economy.

On the economic front, S&P Global Ratings’ analysts recently reported that Latin America is in the middle of a recovery. However, the 2020 GDP forecast for all countries in the region will remain contracted. Due to strong exports to China and less stringent lockdowns, Brazil’s economic contraction will be less severe than was originally forecasted, while other countries like Argentina, Colombia, Mexico, and Peru will be worse off than expected. Meanwhile, Chile is very much on target. Many variables will affect the depth and speed of the recovery as countries try to emerge from the worst pandemic in more than 100 years.

At the sector level, Information Technology, Materials, and Industrials were the winners, with positive returns of 19.1%, 15.2%, and 8.3%, respectively for Q3 2020. The worst performers were Energy, Utilities, and Financials, losing 9.1%, 6.8%, and 6.4%, respectively.

Argentina’s economy is one of the most affected in the region, but economists expect Q3 2020 to be the start of its gradual stabilization. S&P Global Ratings has raised the country’s rating based on a new proposal to restructure its debt in order to avoid another sovereign default. The S&P MERVAL Index gained 7% in ARS for the quarter, with the S&P/BYMA General Construction Index leading the sector board (up 42.5%); the biggest losses came from the Energy sector(-8.9%).

Brazil’s equity market was nearly flat, with the Brazil 100 Index (IBrX 100) and the S&P Brazil BMI gaining 0.0% and 0.7%, respectively. This may be a first step in the right direction, with the economy rebounding during Q3, primarily driven by increased demand in commodity and food exports. Not surprisingly, the S&P/B3 Momentum Index (up 8.5%) and the S&P/B3 High Beta Index (up 5.9%) did well. These smart beta indices are designed to measure stock performance while factoring in the sensitivity of the market and its movements. Likewise, the S&P/B3 Ingenius Index (up 21.0%) continued to generate extraordinary returns in the midst of the pandemic, benefiting from the performance of technology-driven stocks.

Chile is not only struggling with the pandemic, but it is also in the middle of a major potential political change, with an upcoming referendum for a new constitution. All this uncertainty is keeping the equity market in the red, with the S&P IPSA dropping 8.1% in Q3. S&P Global Rating’s economists, however, have been more optimistic about a quick economic recovery in Chile, given the “strong government support for labor markets and business.” Chile’s shining spot was in the mining sector, with the S&P/CLX Natural Resources Index gaining 9.6% in Q3.

Colombia and Peru generated strong results. The S&P Colombia Select Index gained 7.3% for the quarter. Among Peruvian equity indices, the S&P/BVL Peru Select 20% Capped Index was the best performer (up 9.3% in PEN and 7.4% in USD) for Q3, aided by the high returns of the mining sector, as the S&P/BVL Mining Index had double digit returns (up 20.6% in PEN and 18.5% in USD).

Mexico’s main equity indices were generally flat, with the S&P/BMV IPC losing 0.7% for Q3. The exception was the S&P/BMV IRT MidCap, which gained 10.1% for the same period. Looking at the sector indices, the story of Chile and Peru repeats itself, with the mining sector in Mexico yielding the highest return, with the S&P/BMV Materials Select Sector Index gaining 17.3%. Among other industries, FIBRAs in Mexico had a strong third quarter, with returns of 5.9%. As was the case in Brazil with the S&P/B3 Ingenius Index, the S&P/BMV Ingenius Index gained 12.0% for the quarter and 56.6% YTD.


ETF Transactions by U.S. Insurers in Q2 2020

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Raghu Ramachandran

Head of Insurance Asset Channel

INTRODUCTION

In May 2020, we published our annual study of ETF usage by U.S. insurance companies. The data for that analysis is only available annually. However, because of the recent market volatility, we wanted to analyze the use of ETFs by U.S. insurance companies prior to the next annual analysis. While holdings data is not available on a quarterly basis, we were able to analyze ETF transactions. In this analysis, we compare how ETF trading varied between the more volatile first quarter and the calmer second quarter.

ETF TRADES

In the first quarter of 2020, U.S. insurance companies traded USD 24.6 billion in ETFs. In the second quarter, that volume slowed down, but companies still traded USD 13.9 billion in ETFs. Combined, insurance companies traded USD 38.4 billion in the first half of 2020. At the end of 2019, insurance companies only held USD 31.2 billion in ETF assets.

Companies traded heavily during the latter part of the first quarter during the period of increased volatility related to COVID 19. Trading volume dropped considerably during the beginning of the second quarter, until a spike in late May and early June (see Exhibit 1).

Exhibit 1

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Investment in Innovation: Opportunities for Potential Outperformance across the Market-Cap Spectrum

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John van Moyland

Managing Director, Global Head of S&P Kensho Indices

It is of no surprise to anyone following the markets of late that the returns of larger companies have generally fared better than their smaller brethren during the pandemic.  The extent of this dynamic was brought into sharp relief when looking at YTD total returns through May 29, 2020: the large-cap S&P 500® returned -4.97%; the S&P MidCap 400® returned -13.86%; and the S&P SmallCap 600® returned -20.81%.  In the small-cap segment, the Russell 2000 reflected the same story over this period with a return of -15.95%. 

Meanwhile, the equivalent market-cap segments of the S&P Kensho New Economies Composite Index, which seeks to capture the industries and innovation of the Fourth Industrial Revolution, have significantly outperformed their broad market peers by 3.96%, 9.35%, and a substantial 16.49%, respectively, over this same time period (see Exhibit 1).

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This persistent outperformance across market-cap segments may illustrate the positive impact of the security selection effect and underscores the benefits of a robust, disciplined, and transparent framework when investing in innovation and growth.

This commentary will discuss our approach to capturing the New Economies and explore how persistent this pattern has been over different time periods and weighting strategies.  Let’s start out with some context setting.

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