S&P Dow Jones launches S&P GIVI Global Growth Markets Tilt Index

Sep 12th, 2012 | By | Category: ETF and Index News

S&P Dow Jones Indices has rolled out a new index within the S&P GIVI family: the S&P GIVI Global Growth Markets Tilt Index. The index is designed to combine growth and value characteristics with a macroeconomic factor.

S&P GIVI Global Growth Markets Tilt Index launched by S&P Dow Jones Indices

Jim O’Neill, Chairman of Goldman Sachs Asset Management.

The S&P GIVI Global Growth Markets Tilt index is a combination of the base S&P GIVI indices, which combine low volatility and alternative weighting schemes to weight stocks by their calculated intrinsic value (rather than market-capitalisation), and the S&P GIVI GDP Weighted indices, which apply alternate country weights derived from their gross domestic product.

Alka Banerjee, Vice President of Global Equity Indices at S&P Dow Jones Indices, said: “The S&P GIVI Global Growth Markets Tilt indices are the first to combine country GDP growth characteristics with the economic weight of a company. A global GDP-weighted index will typically overweight emerging market stocks which tend to have lower market capitalisation relative to their GDP. The S&P GIVI Global Growth Markets Tilt indices combine the GDP weighting with the GIVI methodology to allow investors to measure the Growth Markets using the GIVI framework.”

‘Growth Markets’, as defined by Goldman Sachs, which conceived the GIVI strategy, encompass any country outside the developed world that is responsible for at least 1% of global GDP. Eight countries currently satisfy this criterion: each of the BRIC countries (Brazil, Russia, India and China), as well as Mexico, Korea, Turkey and Indonesia. According to Goldman Sachs, these are the economies that are most likely to experience rising productivity coupled with favourable demographics and, therefore, a faster growth rate than the world average going forward.

Jim O’Neill, Chairman of Goldman Sachs Asset Management, said: “We see more and more investors looking beyond classic market beta for factors that influence performance and risk. There are several factors behind this development – not least the volatility that we have seen in recent years but also the rise and importance of the Growth Markets.

“In our view, it’s time that new and innovative ways of managing money against differently constructed benchmarks are considered. The GIVI concept eliminates 30% of the stocks with the greatest historical volatility, and weights the remaining stocks by their estimated economic worth rather than on the basis of market cap. At GSAM, we believe this approach to constructing equity portfolios could help generate higher returns at a lower level of volatility and risk, than market-cap weighted indices.”

The base S&P GIVI is constructed from the S&P Global BMI universe, a comprehensive, rules-based global index covering approximately 10,000 companies in 46 countries. Each stock in the S&P GIVI is weighted by its calculated intrinsic value.

The intrinsic value of each stock is the sum of two components: the value of assets in place plus the value of growth opportunities. To achieve its goal of low volatility, S&P GIVI excludes, for each country represented in the S&P Global BMI, the 30% of market capitalisation with the highest beta. Remaining stocks are then weighted by a rules-based measure of intrinsic value, determined by book value and discounted projected earnings.

The entire S&P GIVI suite has been licensed to Goldman Sachs for a range of UCITS tracker funds and so any hopes of accessing this index in the near term via an exchange-traded fund (ETF) seem distant (Goldman Sachs does not currently sponsor ETFs). That said, the firm does offer a couple of exchange-traded notes (ETNs), including the fairly popular GS Connect S&P GSCI Enhanced Commodity Total Return Strategy Index ETN (GSC), meaning an ETN benchmarked to this index may not be out of the question.

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