Sharpe, William F., - Tim Toscano



Carpenter Group for S&P Dow Jones IndicesBrand Experience Web SiteDraft 1August 26, 2016Section 0.0Intro, home page, milestonesSection 1.0InventionSection 2.0 CatalystsSection 3.0DemocratizationSection 4.0ExpansionSection 0.0Intro, home page, milestones[Introduction & Homepage > S&P Dow Indices Brand Overview: 0.10][Splash page/Introduction]Forces of ChangeCreating a new world for investingExplore ground-breaking ideas and innovations that have reshaped the way we invest for more than a century. By disrupting the status quo, indexing has rocked the investing world. Our mission is to make investing accessible to everyone. Discover How > [Link to homepage with main nav, main section names, subheads and links]:[Homepage]Forces of ChangeCreating a new world for investing[Left nav]Invention > [link to 1.00]Catalysts > [link to 2.00]Democratization > [link to 3.00] Expansion > [link to 4.00][Main section names, subheads, links]Invention > [link to 1.00]Changing the way the world looks at the marketCatalysts > [link to 2.00] New wealth. New theories. New innovations.Democratization > [link to 3.00]Leveling the playing fieldExpansion > [link to 4.00]New markets. New indices. New opportunities. [Major Milestones 0.20][Milestones: Nav]Major Milestones: Fueling innovation in the investment world 1896: Charles Dow develops what is now known as the Dow Jones Industrial Average?.1923: Standard Statistics Company, predecessor to Standard & Poor’s, develops its first stock market indicators, covering 233 companies.1941: Standard Statistics merges with Poor’s Publishing to form Standard & Poor's. The company stock market indicator developed in 1923 grows from 233 to 416 companies.1957: Standard & Poor’s publishes the S&P 500? as a 500-stock index for the first time.1972: The S&P 500 becomes the first stock index to be published daily.1975: Institutional quality comes to retail. Vanguard introduces the first consumer index mutual fund, the Vanguard 500, and benchmarks to the S&P 500.2010: In partnership with Experian?, S&P Indices launches the S&P/Experian Consumer Credit Default Index Series. Fixed Income > [link to 3.34]2011: In partnership with CBOE, S&P Indices introduces the VIX Network, a global network of exchanges using VIX methodology. VIX > [link to 2.24]2012: The McGraw Hill Companies and CME Group, the parent companies of S&P Indices and Dow Jones Indexes, form S&P Dow Jones Indices.2012: S&P Dow Jones Indices launches the S&P Global Intrinsic Value (GIVI?) Index, marking S&P DJI’s foray into multi-factor smart beta indices. Style > [link to 3.32]2013: S&P Dow Jones Indices partners with India’s BSE Ltd., formerly known as the Bombay Stock Exchange, to form the joint venture, Asia Index Private Ltd.2014: S&P Dow Jones Indices launches the Dow Jones Commodity Index (DJCI). Commodities > [link to 3.36]2015: In partnership with the Japan Exchange Group, S&P Dow Jones Indices launches the S&P/JPX JGB VIX Index, the first full-scale fixed income volatility index available in the Japanese market.2015: S&P Dow Jones Indices launches the S&P 500 Bond Index, the first fixed income index priced intraday based on the corporate debt of constituents of the S&P 500.2016: S&P Dow Jones Indices launches the S&P Real Assets Index, a first of its kind global benchmark for real assets.2016: S&P Dow Jones Indices launches the S&P China 500 Index.2016: S&P Dow Jones Indices’ parent company McGraw Hill Financial becomes S&P Global.Section 1.0Invention[Content sections]INVENTION [1.00]THE EARLY YEARS [1.10]Charles Dow [1.11]Dow’s Simple Idea [1.12]How it works [1.12.1]Wall Street Exposed [1.13]INVESTMENT LEGACIES [1.20]S&P 500 [1.21]How it works [1.21.1]Luther Lee Blake [1.21.2]DJIA [1.22]The People’s Index [1.22.1]DJIA through time [1.22.2]ENDURING MISSION [1.30]Objectivity [1.31]Transparency [1.32]LIBOR [1.32.1]Communications [1.33]Research and Analysis [1.33.1][Invention 1.00]Invention: Changing the way the world looks at the market[Video tbd covers concepts/content below]Ever since 1896, when Charles Dow [link to 1.11] created the Dow Jones Industrial Average, [link to 1.22] S&P Dow Jones Indices (S&P DJI) has consistently “disrupted” the investment world with new ideas and prompted the financial industry to rethink its approach for 120 years. [Subhead]Commitment to transparencyHow has the company managed to “disrupt” the industry for so long? One of the key reasons is the company has never wavered from its commitment to transparency [link to 1.32] and independence. S&P DJI does not invest in the assets it tracks, nor does it keep its methodology private. [Subhead] High standardsAdhering to such high standards has built a level of trust from clients that few companies can claim. When S&P DJI creates new indexes — perhaps benchmarking the healthcare industry or introducing multi-factor strategies — investors are willing to listen. Perhaps more than any other role, this is what has enabled S&P DJI to continue to disrupt the financial industry for over a century. Click on the links at the left to explore Invention further. Or, travel to related topics throughout the site via the links below.Catalysts > [link to 2.00]Index Funds > [link to 2.21]Investor Demand > [link to 3.30][Invention > The Early Years 1.10]The Early Years:The building blocks to better understanding of the financial marketsIn the late 19th century, no one knew why stock prices behaved as they did. The equities market was an unwieldy world comprised of companies whose performances were driven by seemingly magical forces; often times speculative investments by a small pool of very wealthy individuals. Investors gathered information about potential opportunities through word of mouth. This small-town approach became increasingly ineffective as the New York Stock Exchange crossed its first million-share day of trading.Charles Dow [link to 1.11] had an answer to this problem when he introduced the Dow Jones Industrial Average in 1896. [Chart idea: Early years timeline]1896: Charles Dow develops what is now known as the Dow Jones Industrial Average?.1923: Standard Statistics Company, predecessor to Standard & Poor’s, founded by Luther Lee Blake, develops its first stock market indicators, covering 233 companies.1926: Standard Statistics Company launches the 90-Stock Composite Price Index. 1941: Standard Statistics merges with Poor’s Publishing to form Standard & Poor's. The company stock market indicator developed in 1923 grows from 233 to 416 companies.1946: The Dow Jones Industrial Average celebrates its 50th anniversary.Click on the links at the left to explore Invention further. Or, travel to related topics throughout the site via the links below.Theory Drive Change > [link to 2.10]Theories and Reality > [link to 2.11]Expansion > [link to 4.00][The Early Years > Charles Dow: 1.11]Charles Dow:The financial journalist who studied Wall Street[Photo of Charles Dow]As a financial journalist who studied Wall Street assiduously, Dow viewed the financial world through the eyes of a newsman. Without a vested interest in business per se, he reported on its developments with a level of objectivity unheard of at the time. [Pull quote]“For most Americans, business was still local – the foundry, the store, the farm,” wrote The Market’s Measure: An Illustrated History of America Told Through the Dow Jones Industrial Average, going on to explain that, “The “national economy” seemed an abstraction.” The DJIA [link to 1.22] made that economy tangible.Click on the links at the left to explore Invention further. Or, travel to related topics throughout the site via the links below.Catalysts > [link to 2.00]Index Funds > [link to 2.21]Indexing Popularized > [link to 3.20] Prestbo, John A. (Editor), The Market’s Measure: An Illustrated History of America Told Through the Dow Jones Industrial Average, pp 11-13, p 21[The Early Years > Dow’s Simple Idea: 1.12]Dow’s Simple Idea:That changed the financial markets foreverHaving studied the financial markets as a newsman, Dow saw great potential in a group of nascent companies, known as industrials. He built an index tracking the performance of twelve of these companies and juxtaposed it with a similar railroad benchmark that he had begun calculating two years earlier. As Dow predicted, with railroads transporting the goods produced by the industrials, these two sectors would drive the U.S. economy into the next century. *[Call out]A simple idea that encapsulates the state of the financial markets:Institutional investors might prefer the S&P 500, but the Dow Jones Industrial Average is the “People’s Index.” Over $12 billion in assets under management in ETFs are linked to the DJIA. After over 100 years, most people encapsulate the state of the equity markets with the phrase: “The Dow is up” or “The Dow is down.”Click on the links at the left to explore Invention further. Or, travel to related topics throughout the site via the links below.Theory Drives Change > [link to 2.10]Theories and Reality > [link to 2.11] An Industry Inspired > [link to 2.20]*Prestbo, John A. (Editor), The Market’s Measure: An Illustrated History of America Told Through the Dow Jones Industrial Average, pp 11-13, p 21[Dow’s Simple Idea > How It Works: 1.14]How It Works:Building blocks founded on simple arithmeticDow’s method was a matter of simple arithmetic: Add up the total stock value of each company and divide them by their total number. He then published the average each week in his newspaper The Wall Street Journal. By 1928, when he increased the average to 30, the DJIA was well on its way to becoming the most closely watched equity market indicator in history.[Image idea: mage of the original list of DJIA companies vs today][Subhead] Price weighted averages makes senseEven though the Dow isn’t a true average any more, people can still grasp the idea that you add it up and divide it,” points out Prestbo, former editor of Dow Jones Newsletter, the Dow is more tangible because the math is easier to understand[Call out]Through its simplicity, the Dow provided the building blocks to better understand how financial cycles work. By studying the patterns of stock performances in the past — the usual ebbs and flows — investors could decipher trends of the underlying company’s reaction to the economy, not to mention investor psychology. Such a tool certainly came in handy after the crash of 1929 when market-watchers could decipher patterns and come up with solutions to avoid future calamities.Click on the links at the left to explore Invention further. Or, travel to related topics throughout the site via the links below.Catalysts > [link to 2.00]An Industry Inspired > [link to 2.20]Index Funds > [link to 2.21][The Early Years > Wall Street Exposed: 1.13]Wall Street Exposed:Rooting out market manipulationWhat made Charles Dow’s pencil-and-paper calculation so compelling?Its initial appeal was its ability to root out market manipulation plaguing Wall Street. The benchmark was the market’s polygraph test distinguishing speculative fluctuations –which appeared as spikes in the average — from the more gradual ups and downs of legitimate market movements. Exposing such speculation helped put control of the stock market into the hands of the public. [Pull quote]“Everybody is stronger than anybody,” was the philosophy Dow ironically adapted from Cornelius Vanderbilt, one of the day’s top speculators.*[Photo of Cornelius Vanderbilt]Click on the links at the left to explore Invention further. Or, travel to related topics throughout the site via the links below.Democratization > [link to 3.0]Expansion > [link to 4.00]*Sobel, Robert , Inside Wall Street, 1977, p 120[Invention > Investment Legacies 1.20]Investment Legacies:Leveraging new ideas Like many of today’s innovative disruptors, both the Dow Jones Industrial Average [link to 1.22] and S&P 500 [link to 1.21] leveraged new ideas and technology to make an existing industry more efficient and trustworthy. But even more in keeping with S&P DJI’s legacy today, its fresh approach to methodology was what left an indelible mark on the nature of investing.Click on the links at the left to explore Invention further. Or, travel to related topics throughout the site via the links below.Catalysts > [link to 2.00]Democratization > [link to 3.0][Investment Legacies > S&P 500: 1.21]S&P 500:Responding to growth with new innovationsThe percentage of workers with pensions increased from 12% in 1940 to over 32% by 1955.1With this influx of wealth giving rise to institutional investment firms that included Fidelity Investments, CALPERS, and T. Rowe Price, the average daily volume on NYSE tripled between 1960 and 1965.2 A more sophisticated benchmark was in order. Standard and Poor’s — a company known for publishing tomes of financial reports — came up with just such a system in 1957. It was called the S&P prised of 425 industrial, 15 rail and 60 utility company stocks, the S&P 500 immediately impressed investors by its sheer size. [S&P 500 chart][Call out]Never before had the U.S. market possessed a more comprehensive gauge; S&P 500 captured 90% of its entire value at the time.3Click on the links at the left to explore Invention further. Or, travel to related topics throughout the site via the links below.Index Funds > [link to 2.21]ETFs > [link to 2.22] (Derived from W. Graebner. A History Of Retirement: The Meaning And Function Of An American Institution, 1885 to 1978, New Haven, Connecticut, USA:Yale University Press 1980.2 Innovation and Evolution: The S&P 500, pp 24-25[S&P 500 > How It Works: 1.21.1]How It Works:An innovative new methodologyThe true innovation of the S&P 500 lies in its methodology: Market-weighting measurement. This unknown system at the time measured returns according to market capitalization of each company, rather than utilizing the average mean equation. For example, the performance [company name] accounts for a larger percentage of the overall performance of the market than [company name]. On the other hand, if [company name] fluctuates wildly one day, the entire market did not appear to be doing the same. [Chart idea FPO]This was the most accurate measurement of U.S. equities yet. “Price weighting represents the return on the average dollar. This is how people experience the market. It is the market,” says Bill Sharpe [link to 2.13], Professor of Finance Emeritus at Stanford University Graduate School, who won the Nobel Prize for his Capital Asset Pricing Model (CAPM). Sharpe also points out that market weighting was far better suited for investing. “Equal weighted is not an efficient portfolio to manage.” “People would be buying and selling securities every month or every minute.” Unbeknownst to the world in 1957, the S&P 500 had transformed the index from a market indicator into a powerful investment tool. In 1976 we would see this tool used as the blueprint for the launch of the Vanguard 500 index fund [link to 2.21].Click on the links at the left to explore Invention further. Or, travel to related topics throughout the site via the links below.Expansion > [link to 4.00]Trusted Worldwide > [link to 4.10]New Audiences > [link to 4.20] [S&P 500 > Luther Lee Blake: 1.21.1]Luther Lee Blake:The legacy of a statisticianLuther Lee Blake founded Standard Statistics in 1906 on his belief in the power of statistics. During the 19th century, most financial information was spread through word-of-mouth. People didn’t look up manufacturing capacity, but heard a rumor that the ‘factory was busy’ last month. Such anecdotal, second-hand evidence was hardly a reliable way to predict future profits.[Photo of Luther Lee Blake][Subhead] Methodology mattersBlake replaced the rumors with standardized reports; numbers that told a story. “S&P reports were the Bible of Wall Street,” says Howard Silverblatt. “They would go to all of the railroads and look at the cars and say: ‘Those trains are filled with coal or building components. That means land prices will go up.’ S&P added something that was based on methodology. Something you can back up.” Methodology remains the most important component of everything S&P DJI does today.Click on the links at the left to explore Invention further. Or, travel to related topics throughout the site via the links below.Catalysts > [link to 2.00]An Industry Inspired > [link to 2.20]Democratization > [link to 3.0][Investment Legacies > DJIA: 1.22]DJIA:The longest continually published financial index in history In 1896, Charles Dow [link to 1.11] introduced the Dow Jones Industrial Average, a new way to measure equities that would crack the world of finance wide open. Today, as the longest continually published financial index in history, the Dow is shorthand for the very health of financial markets. “There’s a context when they talk about the past and predict the future; a continuity and context with the Dow.” says John Prestbo, former editor of Dow Jones Newsletter. [Pull quote]When people say “The Dow is up,” it’s often code for “Investors are making money,” and vice versa.Click on the links at the left to explore Invention further. Or, travel to related topics throughout the site via the links below.Expansion > [link to 4.00]Trusted Worldwide > [link to 4.10][DJIA > The People’s Index: 1.22.1]The People’s Index:Embodying the world of investing[Subhead]People Can Relate to the Number 30 Most individual investors do not own 500 or 1000 stocks. “If you added up a customer’s portfolio, you would find it holding an average of 30 to 35,” says John Prestbo, former editor of Dow Jones Newsletter.” It becomes something that is on a human scale.” In fact, Prestbo points out, research shows that 30 is the base for achieving diversification in investing.[Subhead]Everyone knows the companies in the DJIAAmerican Express, Home Depot, AT&T. Not only are these names that investors recognize, no one needs to explain to you what Amex or AT&T do.Click on the links at the left to explore Invention further. Or, travel to related topics throughout the site via the links below.New Audiences > [link to 4.20] Every Market > [link to 4.30][DJIA > The DJIA Through Time: 1.22.2]The DJIA Through Time:Wall Street in a single line[Interactive chart idea: Display the staying power of Dow. Have it so people can link to the Dow facts etc.]DJIA Since Its Inception: Wall Street in A Single Line go to on the links at the left to explore Invention further. Or, travel to related topics throughout the site via the links below.Catalysts > [link to 2.00]Democratization > [link to 3.0]Expansion > [link to 4.00][Invention > Enduring Mission: 1.30]Enduring Mission:A legacy built on transparency and independenceNo matter what role S&P DJI played — measurement tool for equities, blueprint for index funds [link to 2.21] or democratizer [link to 3.00] to investors — change has dominated its narrative. This innate ability to affect change stems from the fact that S&P DJI’s mission has not. [Call out]For 120 years, the company has never veered from its commitment to remaining independent of outside influences and operate in a fashion transparent to market participants. This underlying current continues to spark S&P DJI’s contributions to the transformation of markets. It’s the secret to its innovative disruption.Since the day Charles Dow [link to 1.11] first jotted down the names of the 12 industrial companies, the company’s mission has remained to objectively calculate market activity and behavior. Dow would have been astonished by how this simple, concise principle has guided the company to transform the world of investing. Click on the links at the left to explore Invention further. Or, travel to related topics throughout the site via the links below.Catalysts > [link to 2.00]Democratization > [link to 3.0]Expansion > [link to 4.00][Enduring Mission > Objectivity: 1.31]Objectivity:Only as trustworthy as its sourceS&P DJI believes an index — or any financial statistic for that matter — can only be as trustworthy as its source. If an index provider selects underlying assets based on vested interests, the benchmark no longer reflects the market. Instead, it’s subjected to the whim of a management team. For this reason, S&P DJI does not invest in any assets that comprise its indices. [Subhead]Avoiding conflicts of interestWhile most companies would consider this policy sufficient protection against potential conflict of interest, S&P DJI takes it a step further. The index business operates as a wholly separate entity from any other unit at parent company McGraw Hill Financial (MHFI). Click on the links at the left to explore Invention further. Or, travel to related topics throughout the site via the links below.Expansion > [link to 4.00]Trusted Worldwide > [link to 4.13][Enduring Mission > Transparency: 1.32]Transparency:Essential to maintaining trust and integrity in the marketTo S&P DJI, maintaining transparency standards is equally important. After all, fairness within the financial markets hinges on every participant receiving the same information at the same time. Doesn’t every investor have the right to know how its investment products were built? Or, to put this in the context of consumer goods: The ingredients of a financial security are as central to the health of investors as the nutritional information on a granola bar. That’s precisely why S&P DJI discloses all its underlying assets, as well as its methodology. Anyone has the freedom to discover what goes into an S&P DJI index. No surprise preservatives or high fructose corn syrup.[Pull quote]“In a time when financial market transparency is being called into question, it’s important that investors have at their fingertips the relevant information necessary to make an educated and informed investment decision.”* – Alex Matturri, CEO S&P DJIMatturri made this observation in the wake of the London Interbank Offered Rates, (LIBOR) scandal, and his comments continue to ring true today.Click on the links at the left to explore Invention further. Or, travel to related topics throughout the site via the links below.Trusted Worldwide > [link to 4.10]Every Market > [link to 4.30]* Matturri, Alex, “What’s in a Name?” Indexology, July 16, 2013, [Transparency > LIBOR: 1.32.1]LIBOR:Highlighting the importance of transparencyLIBOR — a benchmark based on the rate at which banks make unsecured loans to one another — underpins over $300 trillion worth of consumer and corporate loans worldwide. In 2012, a handful of international banks were accused of manipulating LIBOR for a profit, thus undermining the value of loans throughout the world. Several banks — including Barclay’s, Deutsche Bank, and UBS — have paid over $9 billion in settlements thus far.1Most people agree that the scandal was endemic of a larger flaw in the system: The group responsible for setting this benchmark also stood to earn money from the rate itself. [Pull quote]“Broker/dealers are interested in trading activity by nature, but that might not be the best way to build an index business.”2 — David Blitzer, Chairman of the index committee at S&P Dow Jones IndicesThis is exactly why maintaining transparency standards and a commitment to independence are central to S&P DJI’s mission.Click on the links at the left to explore Invention further. Or, travel to related topics throughout the site via the links below.Trusted Worldwide > [link to 4.10]Democratization > [link to 3.0]1McBride, James; Allessi, Christopher; Sergie, Mohammed Aly, Understanding the LIBOR Scandal, Council on Foreign Relations, May 21, 2015, 2S&P Acquired Smith Barnet Global Indexes, , November 12, 2003 [Enduring Mission > Communication: 1.33]Communication:Unbiased information that’s easy to understandThe journalist, Charles Dow and statistician, Luther Lee Blake may have approached business differently, but both came up with the same opinion: People make better financial decisions when armed with unbiased information that they can easily understand. That makes for a powerful legacy that S&P DJI continues to follow.[Subhead]A library of resourcesPerhaps even more valuable to the investment community than its track record is S&P DJI’s educational efforts. The company’s website () acts as a virtual library of resources that walk investors through every step of the decision-making process. Novices can learn about anything from inflation to Canadian REITs via the primer series Practice Essentials; or take a two-minute class on Index TV about a range of financial topics, hosted by industry experts.[Image idea: SPDJI, Practice Essentials, IndexTV screenshots]Click on the links at the left to explore Invention further. Or, travel to related topics throughout the site via the links below.Democratization > [link to 3.0]Expansion > [link to 4.00][Communication > Research and Analysis (previously “Links”: 1.33.1]Research and analysis:The S&P DJI brain trustObtain in-depth analysis:S&P DJI’s research reports, ask detailed questions during webinars, or thumb through up-to-date statistics on index performances. For those looking to make sense of daily events, there’s a steady stream of insight and market commentary usually helps translate major financial events into the context of investors.Sometimes S&P DJI surprises readers with a completely fresh take on a well-reported topic: Last June, when the United States Supreme Court legalized same-sex marriages, Jodie Gunzberg published an Indexology blog contemplating how the boost in weddings might impact gold prices. No wonder named as Best Index Site in 2013.[Image idea: blog, SPDJI, research reports screenshots]Click on the links at the left to explore Invention further. Or, travel to related topics throughout the site via the links below.Expansion > [link to 4.00]Trusted Worldwide > [link to 4.10]Section 2.0 Catalysts[Content sections]CATALYSTS [2.00]Theory Drives Change [2.10]Theories and Reality [2.11]Markowitz [2.11.1]Sharpe/Fama [2.11.2]Graham/Dodd [2.11.3]An Industry Inspired [2.20]Mutual Funds [2.21]ETFs [2.22]Futures [2.23]VIX [2.24][Catalysts: 2.00]Catalysts: New Wealth. New Theories. New Innovations.[Video tbd covers content/concepts below]As the 20th century progressed, newly minted members of the middle class began thinking about retirement and investing their extra income. From 1940 to 1975, the percentage of workers with pensions increased from 12% to more than 55%.1[Bar chart showing increase in percentage of workers with pensions between 1940 and 1975. Image below is FPO. Client to confirm and provide data.][Optional image: Chart of pension increase, images of S&P offices from different eras]With this influx of wealth came: The rise of asset management firms such as Vanguard, Fidelity Investments and T. Rowe Price. The average daily volume of the NYSE tripled between 1960 and 1965 The mutual fund industry flourished as total net assets jumped from under $8 billion in 1955 to nearly $135 billion in 1980. From the onset of this growth, a more sophisticated benchmark was in order. Standard & Poor’s came up with just such a benchmark in 1957. It was called the S&P 500 [link to 4.21]. [Subhead]The new generation of economic thinkersDuring this time, a new generation of economic thinking was also taking form. Rather than analyzing the performance of individual companies, Nobel-prize winning economists such as Harry Markowitz [link to 2.11.1], William Sharpe [link to 2.11.2] and Eugene Fama [link to 2.11.2], followed the patterns of the market, calling the logic of stock picking into question. As the rise of Vanguard was about to display, this is where the S&P 500 [link to 1.21] comes back into the story. In 1976 (1975 on site and milestones doc), John Bogel set out to help the average investor capture the return of the market with the Vanguard 500, which tracked the S&P 500’s performance. [Call out]The S&P 500 No other benchmark at the time had so many stocks, nor did any other weight each stock according to size. Tracking the S&P 500 turned out to be pivotal to Vanguard’s success. Click on the links at the left to explore Catalysts further. Or, travel to related topics throughout the site via the links below.Democratization > [link to 3.0]Expansion > [link to 4.00] (Derived from W. Graebner. A History Of Retirement: The Meaning And Function Of An American Institution, 1885 to 1978, New Haven, Connecticut, USA:Yale University Press 1980. [Catalysts > Theory Drives Change: 2.10]Theory Drives Change: The advent of index investingFrom the earliest days of the stock market, the prevailing wisdom was (and still is for many) that individual investors could, if they were smart enough, predict the movement of stock prices — through in-depth analysis.That prevailing view started to change in the early 50s as a new generation of economic thinking was taking form. [Image option: Markowitz’s paper, Fama’s book, Sharpe’s book]In 1952, Harry Markowitz’s [Link to 2.12] landmark paper “Portfolio Selection” is the first mathematical formalization of the idea of diversification of investments: the financial version of “the whole is greater than the sum of its parts.”Then in 1965, the work of Eugene Fama [link to 2.13] continued to sway many minds on and off Wall Street that beating the market was a fool’s errand when he proposed his efficient market hypothesis in a paper called “Random Walks in Stock Prices.” In 1991, William Sharpe [link to 2.13] writes in his historic paper “The Arithmetic of Active Management”:“Over any specified time period, the market return will be a weighted average of the returns on the securities within the market, using beginning market values as weights.1 Each passive manager will obtain precisely the market return, before costs.2 From this, it follows (as the night from the day) that the return on the average actively managed dollar must equal the market return.” On top of all this research is the fact that since 1971 there have been only three periods in which more than 50% of active managers have outpaced the markets. [Call out]“Indeed, if the S&P Index were an athlete, we would probably be testing it for steroids.” – Burton Malkiel, A Random Walk Down Wall Street[Chart of underperforming funds: FPO ]Needless to say, all of this research combined with innovations in index-based investment models and the failure of most fund managers to beat the index led to huge growth in index funds. Click on the links at the left to explore Catalysts further. Or, travel to related topics throughout the site via the links below.Diversification > [link to 3.10]Expansion > [link to 4.00] Sharpe, William F., The Arithmetic of Active Management, The Financial Analysts' Journal Vol. 47, No. 1, January/February 1991. pp. 7-9, Copyright, 1991, Association for Investment Management and Research, SPIVA U.S. Scorecard, Mid-Year 2015, Aye M. Soe Malkiel, Burton, A Random Walk Down Wall Street, 2011 Edition, p 295 [Theory Drives Change > Theories and Reality: 2.11]Theories and Reality: How do you buy the entire market?Based on the work of financial theorists such as Harry Markowitz [link 2.11.1], William Sharpe [link to 2.11.2] and Eugene Fama [link to 2.11.2], many began to question the ability of investors to beat the market. Investment consultant Charles D. Ellis summarized this belief in his 1975 article, The Loser’s Game:“Gifted, determined and ambitious professionals have come into investment management in such large numbers during the past 30 years that is may no longer be feasible for any of them to profit from the errors of all the others sufficiently often and by sufficient magnitude to beat the market averages.”[Subhead]Transforming theory into realityBy calling the logic of stock picking into question, it created a mandate for index-based investing, but how were investors supposed to buy the entire market?Click on the links at the left to explore Catalysts further. Or, travel to related topics throughout the site via the links below.Democratization > [link to 3.00]Diversification > [link to 3.10]Expansion > [link to 4.00][Theories and Reality > Markowitz: 2.11.1]Harry Markowitz: The founding father of Modern Portfolio Theory[Image of Harry Markowitz or his famous book: Portfolio Selection or the Efficient Frontier][Image: Efficient frontier. (Screen capture image below is FPO) or image of Markowitz]In the early 1950s Harry Markowitz, the founding father of Modern Portfolio Theory, developed portfolio theory, which looks at how investment returns can be optimized. Economists had long understood the common sense of diversifying a portfolio; the expression “don’t put all your eggs in one basket” is certainly not new. But Markowitz showed how to measure the risk of various securities and how to combine them in a portfolio to get the maximum return for a given risk.At its simplest level, Mr. Markowitz theory translates into this advice for investors without inside knowledge of the market: [Call out]Forget about individual stocks like Facebook, Google or Amazon and buy broad low-cost stock and bond index funds instead. Allocate them in a proportion that gives you a level of volatility with which you are comfortable.Click on the links at the left to explore Catalysts further. Or, travel to related topics throughout the site via the links below.Diversification > [link to 3.10]Expansion > [link to 4.00][Theories and Reality > Fama/Sharpe: 2.11.2]Fama/Sharpe: Strengthening the case for index investingNoble-prize winning economists, William Sharpe and Eugene Fama continued to build on the work of Harry Markowitz [link to 2.11.1] in unique and groundbreaking ways.[Images: Fama/Sharpe][Subhead: The efficient market hypothesis]While the active versus passive investing debate rages on to this day, it’s fair to say that Eugene Fama’s efficient market hypothesis (EMH) was a huge win for the index-investing camp. In his 1965 paper, “Random Walks in Stock Prices,” Fama concludes that “securities’ prices are always immediately adjusting to new information (or even the expectation of new information), far faster and more accurately than any one individual investor could.”Economists cite the efficient-market hypothesis (EMH) as the fundamental premise that justifies the creation of index funds [link to 2.21]. By creating an index fund that mirrors the whole market the inefficiencies of stock selection are avoided.[Subhead]The Arithmetic of Active ManagementNoble-prize winning economist William Sharpe, continued to build upon the EMH in his historic 1991 paper “The Arithmetic of Active Management” he explains that, when you factor in the cost of investing — be it hiring a money manager or paying fees for a broker — the investors always ends up losing money. In a nutshell, both Fama and Sharpe render it impossible for most investors to select stocks or other assets that “beat the markets.”Click on the links at the left to explore Catalysts further. Or, travel to related topics throughout the site via the links below.Invention > [link to 1.00]Investment Legacies > [link to 1.20][Theories and Reality > Graham/Dodd: 2.11.3]Graham/Dodd: Putting theory to work By the 1990s, investment theories, once considered groundbreaking, such as value or growth investing had become common wisdom. Value investing — the practice of buying stocks when they are deemed “cheap” and then selling when prices are high is a logical concept, one that Benjamin Graham and David Dodd introduced during the Depression era. To many, however, such styles [link 6.32] remained just that — theories that could not be easily or affordably reconstructed. [Images: Graham/Dodd][Subhead]The first value and growth style indicesFor years, there were only two ways to reap the benefits of value style: Purchase a handful of value or growth stocks, squandering precious resources on research and trade expenses; or invest in a mutual fund, paying steep fees. Neither was particularly cost-effective. This led S&P DJI to wonder: Why couldn’t an investable index bring such theories to life? In 1994, the company introduced the first value and growth style indices, S&P 500 Value Index and S&P 500 Growth.Click on the links at the left to explore Catalysts further. Or, travel to related topics throughout the site via the links below.Investor Demand > [link to 3.30]Style > [link to 3.32][Catalysts > An Industry Inspired: 2.20]An Industry Inspired: The S&P 500 fuels the birth of a new era in investing Adapting the index-based investment model would seem like a no-brainer given that the 1973-74 bear market had extinguished the hot returns of many superstar money managers. Yet the benefits of passive investing had yet to strike a chord with consumers. [Subhead]The first index fund is bornWhile ExxonMobil linked its pension directly to the S&P 500, in 1975, other index products were created by organizations like Mellon Bank and American National Bank and Trust. * Yet these products were all geared toward pensions and financial institutions not the retail market.Then in 1976 (Brand story doc say ’76 site and milestones say 1975), John Bogle set out to change everyone’s mind when he launched the Vanguard 500, an index fund [link to 3.21], which tracked the performance of the S&P 500 [link to 4.21]. Click on the links at the left to explore Catalysts further. Or, travel to related topics throughout the site via the links below.Democratization > [link to 3.00]Diversification > [link to 3.10]* Pension and Investing, , 1998[An Industry Inspired > Index Funds: 2.21]Index Funds: Owning the marketKnown as “Bogle’s Folly,” John Bogle’s Vanguard was met with much skepticism. Well-known stock picker Steve Leuthold even ran a poster for his firm the Leuthold Group declaring index investing “Un-American.”Skepticism and negative ads aside, selecting the S&P 500 [link to 4.21] as Vanguard 500’s backbone was pivotal to Bogle’s eventual success. [Subhead]The Blueprint for Index InvestingThe S&P 500 recreates the experience of ‘owning’ the stock market. No other benchmark at the time had so many stocks. Nor did any other weight stocks according to size — a system that reflects the return on the average dollar, which is how investors actually measure their investments. Also, S&P 500’s automatic rebalancing of holdings after they split made it easily investible. As did the fact that the 500’s underlying large cap assets were extremely liquid. The S&P 500 provided the ideal blueprint for index investing.Following that blueprint began to pay off for Bogle by the mid-eighties. Steadily, investors became aware that buying an entire index provided diversification, which reduced risk and enhanced returns. Index funds also significantly reduced costs, by reducing management fees and expenses.[CHART RECOMMENDATION: Long-term impact of investment costs. FPO. Data TK from client.]Click on the links at the left to explore Catalysts further. Or, travel to related topics throughout the site via the links below.Democratization > [link to 3.00]Diversification > [link to 3.10][An Industry Inspired > ETFs: 3.22]ETFs: Inspired by the S&P 500The “blueprint” S&P provided for index funds turned out to be highly adaptable. Inspired by Vanguards’ popularity, Amex spearheaded a project with Standard & Poor’s and State Street Bank to invent a new product called S&P Depository Receipts, better known as SPDR, the world’s first Exchange Traded Fund (ETF). [Subhead]The World’s First ETFRather than a basket of securities, SPDR was a single security that tracked the movement of the S&P 500 [link to 4.21]. It traded with the agility of a single stock, providing real time returns, rather than a single net asset value at day’s end. SPDR quickly took off. Backed by the credibility of the S&P 500, institutional and retail investors alike loved its fluidity, which enabled them to fine tune market exposure. They also appreciated that SPDR offered exposure to a large number of securities in the form of one share, which could be obtained affordably from any investment platform.Click on the links at the left to explore Catalysts further. Or, travel to related topics throughout the site via the links below.Democratization > [link to 3.00]Expansion > [link to 4.00][An Industry Inspired > Futures: 2.23]Futures: Another groundbreaking concept The potential breadth of the S&P 500’s influence became abundantly clear when Leo Melamed, former chairman of the Chicago Mercantile Exchange (CME), met with Standard & Poor’s Corporation to purchase a license for the right to exclusively trade the S&P 500 as a futures contract. [Subhead]A strange requestAt the time, futures predicted the value of real assets, such as eggs, butter, gasoline or steel. No one envisioned trading the future of something as intangible as underlying assets. However, S&P agreed to the licensing deal and, in 1982, the S&P 500 futures contract was released. It would become the most heavily traded financial futures contract in the world.Melamed’s reasons for using the S&P 500 were similar to that of the creators of SPDR. As he wrote in his book: Escape to the Futures “Our Economics Department provided an analysis that indicated that portfolio managers, who we reckoned would be the ones to drive the business toward futures, measure their annual results against the S&P 500. This indicated to me that the commercial hedgers would be attracted to the S&P Index rather than to the Dow.” *The S&P 500 had given practical form to another groundbreaking concept — one that shifted how the commodity industry functioned. The path for financial futures — an instrument used to hedge against risk around the world — was paved.Click on the links at the left to explore Catalysts further. Or, travel to related topics throughout the site via the links below.Investment Legacies > [link to 1.20]Enduring Mission > [link to 1.30]* Melamed, Leo and Tamarkin, Bob, Escape to the Futures, 1996, p 293[An Industry Inspired > VIX: 3.24]VIX: Identifying and managing risk Just as the S&P 500 sparked the development of index funds, ETFs and Futures markets, the benchmark is also instrumental in identifying risk. Volatility can rattle investors as asset values rise and fall unexpectedly. Providing a way of identifying and measuring this volatility can help alleviate some of the fears associated with volatility. A quantitative approach to measuring riskThat’s exactly what Chicago Board Options Exchange (CBOE) set out to do in 1993 when it launched VIX, a volatility index based on S&P 100 (later to the 500). By calculating the 30-day implied volatility of S&P 500 puts and calls, VIX provided a quantitative approach to measuring this particular form of risk.[Chart recommendation: VIX. FPO. Client to provide file and data.] created huge potential for attracting more investors to the equity markets. "The more ways you have to hedge risk, the more ways you feel comfortable investing in the markets," Jeffrey Tabak, a partner with Miller Tabak Hirsch & Company, told the New York Times when the VIX was introduced.* Tabak’s comment was never more prescient than during the financial crisis in 2008.[Call out]“All of a sudden people realized that there is an asset class that they can trade which moves in the opposite direction of equities,” – Berlinda Liu, Director of Index Research and Design at S&P DJI Click on the links at the left to explore Catalysts further. Or, travel to related topics throughout the site via the links below.Invention > [link to 1.00]Investor Demand > [link to 3.30]* Eichenwald, Kurt, Market Place, The New York Times, January 20, 1993, Section 3.0Democratization[Content sections]DEMOCRATIZATION [3.00]DIVERSIFICATION [3.10]INDEXING POPULARIZED [3.20]The American Story [3.21] INVESTOR DEMAND [3.30]Equities [3.31]Style [3.32]Factors [3.33]Fixed Income [3.34]Asset Allocation [3.35]Commodities [3.36]Alternatives [3.37][Democratization 3.00]Democratization: Leveling the playing field[Video tbd covers content/concepts below]S&P DJI cannot take all the credit for ‘leveling the playing field.’ New technology and the speedier flow of information have certainly done their part. Nevertheless, $3.05 trillion is now directly invested in products based upon all stock and bond indices calculated and published by S&P DJI alone. The company’s indices also serve as the basis for more ETF [link to 2.22] assets than any other index provider in the world.1 So it’s safe to say that S&P DJI has moved the democratization of investing forward, and will continue to do so by inventing newer and better ideas. [Chart/pull out idea]Over the last eight years, ETFGI reports that global ETF Assets (excluding the US) have increased by over 360%. And one quarter of equity index fund assets reside in global funds, according to the 2015 ICI Fact Book.2 Click on the links at the left to explore Democratization further. Or, travel to related topics throughout the site via the links below.Trusted Worldwide > [link to 4.10]New Audiences > [link to 4.20]Every Market > [link to 4.30] ETFGI Press Release, January 12, 2015, 2015 ICI Fact Book, “Net New Cash Flow Into Index Mutual Funds,” Figure 2.13, p 45[Democratization > Diversification: 3.10]Diversification:Helping make diversification more affordableA well-diversified portfolio has long been considered the holy grail of investing. Yet for many people, this was far easier said than done. Behind every new asset class lay yet another steep management fee. [Subhead]Enhancing portfolio management for individuals and their advisorsS&P DJI’s selection of asset classes, styles and strategies enables investors to build a portfolio of index-based products for equities [link to 3.31], fixed income [link to 3.34], commodities [link to 3.36], and real estate. Switch between smart strategies for low volatility or momentum or gain exposure to every global economy imaginable for a fraction of the cost of individual securities or actively managed funds.[Subhead: Expanding the universe of options for individuals and professional alike]That’s not to say indexing [link to 2.21] has rendered professional financial expertise obsolete. Quite the contrary, S&P DJI index-based investments enhance what financial advisors can do for their clients. Rather than simply selling clients a basket of equity and fixed income mutual funds, today’s wealth managers can draw upon an array of index products and ETFs, [link to 2.22] to provide exposure to a vast array of assets and markets around the world.[Featured link: Asset Allocation vs. Diversification]Click on the links at the left to explore Democratization further. Or, travel to related topics throughout the site via the links below.Invention > [link to 1.00]Investment Legacies > [link to 1.20]Catalysts > [link to 2.00][Democratization > Indexing Popularized: 3.20]Indexing Popularized:An industry unto itselfBy the dawn of the 21st century, passive investing had evolved into an industry unto itself. Index-based products more than doubled during the decade ended in 2013, which meant passive investments accounted for 26% of total global investments.1[Subhead]Sage advice from the Wizard of OmahaThat same year, Berkshire Hathaway Chairman Warren Buffett, the world’s most revered stock picker, revealed that 90% of his wife’s inheritance will go into an S&P 500 [link to 4.21] index fund. As the Wizard of Omaha explains, “I believe the trust's long-term results from this policy will be superior to those attained by most investors — whether pension funds, institutions or individuals — who employ high-fee managers.”2[Photo of Warren Buffett][Chart idea: ICI Flows]Click on the links at the left to explore Democratization further. Or, travel to related topics throughout the site via the links below.Expansion > [link to 4.00]Trusted Worldwide > [link to 4.10]1 Kover, Amy, The Innovation Behind the Index, McGraw Hill Financial, July 2014, 2 Buffet Warren, Berkshire Hathaway Annual Shareholder Letter 2013, p 20[Indexing Popularized > The American Story: 3.21]The American Story The Ideal Script for Financial SecurityBy the early 1970s, the ideal script for obtaining financial security went something like this: [Call out]Average Investor Bob worked for General Motors his entire professional life and –at age 65--- received a pension fund to support his retirement. Over the years, Bob socked his extra savings away into equities recommended by a broker (for a commission) or into mutual funds (for a fee). At one point, he made a killing by investing with a star money manager, who famously picked stocks with dazzling returns. Bob and his wife were able to retire comfortably to Florida.[Subhead]The S&P 500 lends credibility to institutional investorsAs Bob’s fairy tale story implies, financial security was built primarily upon the expertise of large investment institutions; they were the pillars upon which investors’ futures depended and the S&P 500’s job was to measure if those pillars were structurally sound. Click on the links at the left to explore Democratization further. Or, travel to related topics throughout the site via the links below.S&P 500 > [link to 1.21]How It Works > [link to 1.21.1]Democratization > Investor Demand: 3.30]Investor Demand:Keeping supply and demand in equilibriumIn a funny twist of fate, this era of passive investing has positioned S&P DJI to play its most active role yet. The more familiar with indexing people become, the more they demand. They want options for every asset class, style and strategy imaginable; products to liberate their entire portfolio from excessive costs. That’s why S&P DJI has launched thousands of new indices, including 325 in 2013 alone UPDATE TO 2014 UPON PUBLICATION TIME? and calculates over 1 million on a daily basis. Beyond S&P 500 and the Dow Jones Industrial Average, its benchmarks include globally-recognized brands such as S&P 500 Low Volatility, S&P GSCI Commodities Index, and the S&P/Case Shiller Home Price Indices. In other words, S&P DJI is the intelligence behind index-based investing. [Chart idea: show the # of indices launched for the last few years and the number of indices calculated on a daily basis.]Click on the links at the left to explore Democratization further. Or, travel to related topics throughout the site via the links below.S&P 500 > [link to 1.21]DJIA > [link to 1.22]Enduring Mission > [link to 1.30][Investor Demand > Equities: 3.31]Equities:Expanding the equity index lineupHaving created the DJIA [link to 4.22] and the S&P 500 [link to 4.21] many years earlier, by 1991, it was time to expand the line of equity indices. That year, S&P published the S&P Mid-Cap 400 and the S&P Small Cap 600 in 1994. From a distance the expansion might seem like an imitation of pre-existing total market indices, yet what S&P DJI offers is far more nuanced. [Subhead]Maintaining the market-weighted methodologyEach index follows the same market-weighted methodology as the original 500, creating a consistent measurement of all stocks. And by creating three different indices — all of which are mutually exclusive — investors can choose their own strategy, be it exposure solely to small caps, a blend of two different sizes, or the total S&P 1500. Together, the core U.S. market index family functions something like a Swiss Army Knife — a comprehensive yet modular tool kit for investing.[Image idea: Swiss army knife with index names on the tools]Click on the links at the left to explore Democratization further. Or, travel to related topics throughout the site via the links below.Objectivity > [link to 1.31]Transparency > [link to 1.32][Investor Demand > Style: 3.32]Style:Investing with styleIn 1994, S&P introduced the first value and growth style indices, S&P 500 Value Index and S&P 500 Growth. Eleven years later, “pure” versions of both indices debuted, which adhered to stricter rules for growth and value, and eschewed weighting stocks based on size in favor of relative style attractiveness. [Pull quote]“As these styles gained gravity beyond academia, we put these theories into practice,” –Jamie Farmer, Managing Director of Index Investment Strategies at S&P DJIClick on the links at the left to explore Democratization further. Or, travel to related topics throughout the site via the links below.Theory Drives Change > [link to 1.10]Theories and Reality > [link to 1.11][Investor Demand > Factors: 3.33]Factors:New ways to reduce volatilitySmart beta. The term shows up everywhere, but what it means remains murky? By definition, smart beta — aka factor-based investing — is the practice of capturing and amplifying a particular return premium. The strategy works off the concept that stock investors are compensated for taking on certain risks, namely size, value, and volatility. [Subhead]Low volatility was the original smart betaBut what if you removed one of those risks entirely? The payoff might be lower, but you would also reduce potential losses. Or you could “amp up” risk for inverse results. By playing around with each factor, investors adjust the dial on their risk/reward ratio. The idea of tilting an index away from specific risk became particularly compelling in the wake of the 2008 financial meltdown. Investors to smooth out rocky returns, aka reduce volatility. [Subhead] A simpler and more direct pathTo do so, many indexers employed “black box” methods, such as minimum variance, which entails mathematic formulas that only a PhD candidate could love. S&P DJI chose a more direct path, narrowing the S&P 500 to its 100 least volatile stocks to create the S&P 500 Low Volatility Index. [Call out]Since its launch in 2011, assets in the PowerShares S&P 500 Low Vol ETF, which mimics the Low Vol Index, have nearly quadrupled to US $4.5 billion, according to .Click on the links at the left to explore Democratization further. Or, travel to related topics throughout the site via the links below.Objectivity > [link to 1.31]Transparency > [link to 1.32][Investor Demand > Fixed Income: 3.34]Fixed Income:Solving the challenges of buying bondsIn the case of fixed-income, S&P DJI solved a problem that’s traditionally dogged bond funds. Buying bonds outright has always been prohibitively expensive, requiring minimums of $10,000 at outrageous rates. On the flip side, because bond funds do not “mature,” they fail to deliver the key purpose of fixed income investing: protected principal, which you can access at maturity. [Subhead]The first bond index linked to an ETFIn 2007, S&P DJI introduced its groundbreaking S&P National AMT-Free Municipal Bond Index, which consists of non-callable bonds that mature within a specific year. The laddered approach creates the same effect as individual bonds at a fraction of the cost.At the time, there were few index-based options available. [Pull quote]“Most indexed bond products were ETFs specializing in U.S. Treasuries or inflation,” explains JR Rieger, head of global fixed income at S&P DJI. “There was less for over-the-counter markets like corporates, and asset classes like munis did not have products available at all.” S&P DJI filled that void with The S&P National AMT-Free Municipal Bond Index — the first municipal bond index linked to an ETF (iShares National AMT-Free Municipal Bond ETF symbol). Click on the links at the left to explore Democratization further. Or, travel to related topics throughout the site via the links below.Trusted Worldwide > [link to 4.10]New Audiences > [link to 4.20]Every Market > [link to 4.30][Investor Demand > Asset Allocation: 3.35]Asset Allocation:Finding the right mixHow do you know if you have the right mix of stocks, bonds, or cash? What if you’re exposed to the wrong asset class during a market crisis? For those who want one-stop-shopping products, To help allay such fears, S&P DJI created its Asset Allocation Indices, such as S&P Target Date to Retirement family, which includes 11 multi-asset class index that correspond with a specific date. Rather than paying for a mutual fund manager to answer such questions, S&P DJI built the expertise of asset allocation into the index itself. [Chart idea: Asset Allocation vs. Diversification][Caption] Asset allocation is principally concerned with allocating capital into different asset classes. Diversification is typically associated with the allocation of capital within those asset classes.Click on the links at the left to explore Democratization further. Or, travel to related topics throughout the site via the links below.Fama/Sharpe > [link to 2.11.2]Graham / Dodd > [link to 2.11.3][Investor Demand > Commodities: 3.36]Commodities:Low correlation to equitiesBy the 1990s, commodities were also ripe for indexing, partly because they help hedge against losses from inflation. As Jodie Gunzberg, Global Head of Commodities at S&P DJI, points out: “It’s the same food and energy prices that go into indices that you see in the CPI.” Even more compelling, the asset class has an exceptionally low correlation to the equity market. [Subhead] Helping smooth out portfolio volatilityAs a result, commodities famously protected investors during periods such as the stock market crash of 1987 and the Persian Gulf War in 1991. Between 1970 and 2014, the S&P 500 and S&P GSCI have only dropped together during four years.In 1998, the company introduced the DJ AIG Commodity Index as an investable index providing access to commodities. Then in 2007, the company acquired from Goldman Sachs the GSCI, which was the world’s first investable commodity index when it launched in 1991. [Call out]The timing was prescient. In a rerun of 1987, commodities pulled off similar heroics during the beginning of the meltdown from late 2007 to mid 2008 — offering negative correlation to stocks. From there, the company continued to build its resources and research to evolve into one of the leading authorities on commodities. Click on the links at the left to explore Democratization further. Or, travel to related topics throughout the site via the links below.Theory Drives Change > [link to 2.10]An Industry Inspired > [link to 2.20][Investor Demand > Alternatives: 3.37]Alternatives Meeting demand beyond traditional assets[Note: This supporting copy is the same as Index Partners 5.23 in the Expansion > New Audiences section, so we need to revisit this. I’ve updated the Index Partners with Guggenheim partnership content, but not sure it’s right.]Beyond traditional assets, S&P DJI opened the door to more unusual categories that smaller investors could not access in years past. For example, while high-leveraged loans would attract yield-hungry investors, they’ve remained difficult to obtain because many loan facilities cannot be found in the secondary market. And buying loans can be treacherous without a standardized mode of measurement.[Subhead]Opening up new opportunities for investorsThe S&P/LSTA U.S. Leveraged Loan 100 changed these discrepancies by selecting the 100 largest loans outstanding, so that the index reflects the general market conditions as closely as possible. The index serves as the basis for a series of consumer products for leveraged loans offered by PowerShares.Click on the links at the left to explore Democratization further. Or, travel to related topics throughout the site via the links below.Catalysts > [link to 2.00]An Industry Inspired > [link to 2.20]Expansion > [link to 4.00]Section 4.0Expansion[Content sections]EXPANSION [4.00]TRUSTED WORLDWIDE [4.10]NEW AUDIENCES [4.20]Shariah [4.21]ESG [4.22]Index Partners [4.22]EVERY MARKET [4.30]Infrastructure [4.31]HEADLINE INDICES [4.40]Exchange Partners [4.41][Expansion 4.00]Expansion: New markets. New indices. New opportunities.[Video tbd covers content/concepts below]Today, people invest in capital markets all over the world, regardless of their geographic location, level of sophistication or personal goals. While the percentage of Americans invested in stocks has declined from a high of 65% before the financial crisis in 2008, the share of U.S. households that own stock has increased from below 25% in the early 1960s to 55% today.1 2[Chart ideas: increase in stock ownership and ETF growth outlined above (stats from charts below would be combined, but I couldn’t find the chart mentioned in the footnote.)]Global ETF assets alone approached $3 trillion with a 12% growth rate in 2014.3 To be sure, the rise of the index fund [link to 2.21] and ETFs [link to 2.22] played a major role in this growth and the way the world views investing. Click on the links at the left to explore Expansion further. Or, travel to related topics throughout the site via the links below.Invention > [link to 1.00]Catalysts > [link to 2.00] Duca, John V., “The Democratization of America’s Capital Markets,” Federal Reserve Bank of Dallas2 McCarthy, Justin, “Little Change in Percentage of Americans Who Own Stocks,” Gallup Research, April 22, 2015, 3 ETFGI Press Release, January 12, 2015, [Expansion > Trusted Worldwide 4.10]Trusted Worldwide:Founded on transparent methodologyThough strictly comprised of US-based companies, the success of the S&P 500 [link to 1.21] popularized its brand of index building beyond the boundaries of the United States. The 500 template made it easy to compare different markets through sector asset classification. [Call out]By adhering to the Global Industry Classification Standard (GICS) — a set of criteria used to categorize companies into sectors, developed by S&P DJI and MSCI — a basket of technology stocks in Japan can be measured against a basket of technology stocks in Brazil. Such symmetry helped market analysts to gauge which countries were ripe for investing. And with better research came a better understanding of how global markets interact. Whether investing in dollars, Euros or South African rands, S&P DJI’s transparent methodology made the experience trustworthy and comparable. It lent itself to building investible indices abroad, by providing a blueprint for mechanisms like market-cap weighting, free float adjustments.Click on the links at the left to explore Expansion further. Or, travel to related topics throughout the site via the links below.Objectivity > [link to 1.31]Transparency > [link to 1.32]Communication > [link to 1.33][Expansion > New Audiences 4.20]New Audiences:Democratization underwayOn the global front, nothing has transformed investing abroad like the ETF [link to 2.22], which allows people to circumvent complexities, like currency conversion, to simply buy foreign assets on a local exchange. The number of ETFs in the Middle East or Africa has gone from 6 in 2006 to 40 by 2014, and increased fivefold to a total of 118 in Asia (excluding Japan) during that time period.[Chart showing growth of ETFs listed above]Click on the links at the left to explore Expansion further. Or, travel to related topics throughout the site via the links below.Democratization > [link to 3.00]Indexing Popularized > [link to 3.20][New Audiences > Shariah: 4.21]Shariah Compliant:The index creates the investorHistorically, people of Islamic faith have been alienated from index-based investing because Shariah law prohibits investing in securities where one does not own the underlying assets. In 2006, the company launched its S&P Shariah Index family, a rules-based methodology that filtered headline indices [link to 4.40] (initially S&P 500, S&P Europe 350 and S&P Japan 500) to align with Shariah law. Today, there are 31 Shariah products available. [Call out or list of indices]During the selection process each company’s latest financial statement is reviewed to ensure the company is not involved in any non-Shariah compliant activities.[Optional list]Click on the links at the left to explore Expansion further. Or, travel to related topics throughout the site via the links below.Diversification > [link to 3.10]Indexing Popularized > [link to 3.20]Investor Demand > [link to 3.30][New Audiences > ESG: 4.22]ESG Investing:Creating more options for investors S&P DJI and RobecoSAM introduced the Dow Jones Sustainability Index, the first global sustainability benchmark in 1999 to help environmentally- and socially-conscious investors reconcile financial needs with personal ethics. [Call out]Since 1999, socially conscious investing has come even further at S&P DJI with a total of 16 indices from all over the world. Many specialize in green investing themes, such as ecology & water, clean & alternative energy, and carbon efficient indices. In Indian, Egyptian and Pan Arab markets, S&P DJI has even devised its own Environment Social Government (ESG) methodology to unearth companies that excel in these ethical categories.Click on the links at the left to explore Expansion further. Or, travel to related topics throughout the site via the links below.Democratization > [link to 3.00]Indexing Popularized > [link to 3.20]Asset Allocation > [link to 3.30]New Audiences > Index Partners: 4.23]Index Partners [Note: This is not on the board but is on the site maps]:Collaborating to create real-world market opportunitiesMethodology must apply to real-world investing. [Pull quote]“It doesn’t matter how theoretically pure an index’s methodology is if investors cannot put on the trade,” – Jamie Farmer, Managing Director of Index Investment Strategies at S&P DJI. When Guggenheim Investments, a firm with $15 billion in S&P DJI-benchmarked assets, approached S&P DJI to create an index that would track the global water industry for an ETF, one pressing concern was that many of the underlying stocks were too small and illiquid to sustain trading demands. In response, S&P DJI recommended raising market capitalization, which might limit the number of qualifying investments, but would ultimately make the index more liquid. [Pull quote]“In addition to being really good at creating indices that investors need, S&P DJI makes product that we can actually go out and invest in” – Jordan Farris, who develops ETF products for Guggenheim Investments Click on the links at the left to explore Expansion further. Or, travel to related topics throughout the site via the links below.Every Market > [link to 5.30]Infrastructure > [link to 5.31][Expansion > Every Market 4.30]Every Market:Everywhere except AntarcticaWhether it’s the mountains of Peru or the alleyways of New Delhi, there are few places on earth where S&P DJI has not been. As the foremost indexer in the world, S&P DJI calculates indices for: [Graphic idea: Bold/large numbers highlight stats below]83 countries1800 clients 67 countriesFrom offices in 18 different cities. With international revenue now eclipsing domestic revenue, S&P DJI offers indices ranging from broad-based global benchmarks to those covering markets in Africa, Asia, South America, Europe and Australia.*Click on the links at the left to explore Expansion further. Or, travel to related topics throughout the site via the links below.Democratization > [link to 3.00]Indexing Popularized > [link to 3.20]* S&P Indices Revenue Growth by Region Year Over Year, William Blair & Company LLCExpansion > Every Market > Infrastructure: 4.31]Infrastructure:Global and localS&P DJI remains committed to building regional expertise, establishing 18 offices worldwide and employs over 300 client-dedicated professionals—many of whom are local — who possess a deep-seeded understanding of “how things work.” Such groundwork can be detected in index details, such as in its Hong Kong index, which includes HSBC rather than in the United Kingdom because the multinational bank plays a major role in the country’s economy.[Chart/image idea: Map of world offices]Click on the links at the left to explore Expansion further. Or, travel to related topics throughout the site via the links below.Democratization > [link to 3.00]Indexing Popularized > [link to 3.20][Expansion > Headline Indices: 5.40]Headline Indices:Providing the framework for new opportunitiesPhysical presence is just one component of how S&P DJI has changed investing throughout the world. Acting like a universal translator, S&P DJI contributed the structure that made global markets more comparable, more investible, and ultimately, far less intimidating. The groundwork it laid out by S&P DJI — via partnerships with regional market exchange — investors in every corner of the world can discover global opportunity in their own backyard.[Call out]The headline index is considered the accepted leader in a given region and provides the foundation from which variations or composites of the headline index are created. For example, The S&P Global 1200 provides efficient exposure to the global equity market. Capturing approximately 70% of global market capitalization, it is constructed as a composite of 7 headline indices, including:S&P 500? (US) S&P Europe 350 S&P TOPIX 150 (Japan) S&P/TSX 60 (Canada) S&P/ASX All Australian 50 S&P Asia 50 S&P Latin America 40Click on the links at the left to explore Expansion further. Or, travel to related topics throughout the site via the links below.Democratization > [link to 3.00]Investor Demand > [link to 3.30][Expansion > Headline Indices > Exchange Partners: 5.41]Exchange Partners:In nearly every part of the worldAs S&P DJI’s standard practices became commonly accepted around the world, other market exchanges began to take notice. In 1998, the company joined forces with Toronto Stock Exchange (TMX) in Canada to calculate an index modeled after the 500; followed shortly thereafter by a similar partnership with the Australian Securities Exchange (ASX). Both indices have evolved into the headline indices [link to 5.40] for Canada and Australia, as have S&P DJI’s indices in: [Image idea: Use country flags for indices below]India (BSE), Brazil (BVMF) Mexico (BMZ)Japan (TSE)Russia (RTS)Europe (Eurex)Hong Kong (HKE)Korea (KRX)Romania (SIBEX) Peru (BVL) Today S&P DJI has partnerships in nearly every inhabitable locale in the world.Click on the links at the left to explore Expansion further. Or, travel to related topics throughout the site via the links below.Democratization > [link to 3.00]Diversification > [link to 3.10] ................
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