Multi-factor Indices

Multi-factor Indices

Investment objective

S&P Dow Jones Indices and RobecoSAM offer a range of indices that use a multi-factor methodology to combine ESG with other common factors, thereby bringing together two growing trends in the index space: factor indices and ESG indices. Investors in these indices gain exposure to the performance potential of well-known common factors – low volatility, dividend yield, value or momentum – while avoiding ESG-related risks in their portfolios by directing their investment towards more sustainable companies.
 
The multi-factor indices are based on the common factors used in S&P Dow Jones Indices’ standard factor indices and ESG information derived from RobecoSAM’s annual Corporate Sustainability Assessment. Because a multi-factor approach allows us to combine common factors sustainability in a variety of ways, these indices can be customized to meet specific client needs and create value from both components.  
 

Methodology

The starting point for every multi-factor index is RobecoSAM’s Corporate Sustainability Assessment (CSA) and the standard financial factors used in S&P Dow Jones Indices’ (SPDJI) factor index offering:

  • Low volatility
  • High beta
  • Growth
  • Value
  • Dividend
  • Momentum
  • Quality

While the multi-factor indices based on the DJSI family use the Total Sustainability Score from the RobecoSAM CSA for the ESG component of the index, other indices in our multi-factor offering draw upon a subset of ESG indicators from the CSA. Depending on the specific sustainability objectives of each index, we dig deeper into the CSA to identify and select the data and criteria that are most relevant to that index. For instance, the S&P Long- Term Value Creation Global Index draws upon the Economic dimension score, while the Human Capital Development Index uses a selection of indicators focusing on human capital, talent attraction and retention and other labor related criteria.
 
Each multi-factor index launched by SPDJI and RobecoSAM uses a transparent and robust methodology combining the benefits of the selected financial factors and ESG.
 
One prominent example of how we combine common factors with ESG to construct a multi-factor index is the S&P Long- Term Value Creation Global Index.  
 
S&P Long- Term Value Creation Global Index
The S&P Long- Term Value Creation Global Index (LTVC) was developed by RobecoSAM and S&P Dow Jones Indices in cooperation with the Canada Pension Plan Investment Board. The index identifies companies that have the potential to create long-term shareholder value and therefore are suitable for pension funds with a long time horizon and who would like to investment in equities.

S&P_Long-Term_Value_Creation_Global.jpg

The index consists of stocks that are highly-ranked in global equity markets based on both proprietary sustainability and financial quality criteria:

  • Sustainability: the Economic Dimension Score from RobecoSAM’s Corporate Sustainability Assessment – encompassing corporate governance, risk and crisis management, supply chain management, tax strategy, and financial materiality 
  • Quality: Companies that have demonstrated a sustained history of financial quality as measured by their profitability, balance sheet, and the quality of earnings

To further underscore the long-term orientation of the S&P LTVC Global Index, a vintage rebalancing structure is applied. The index consists of a rotation of three annually formed vintages, constructed over a three year period. Each vintage contains the top 150 stocks as ranked by the combined RobecoSAM Economic Dimension Score and the S&P Quality Score. This means that the stocks selected for each vintage will remain in the index for at least three years. Each vintage represents one-third of the overall portfolio.

Indices

The multi-factor indices we have launched and the factor combinations they are using are shown in the following table:

Index Members Factor combination
     
S&P Long-Term Value Creation  Global (LTVC) Global     S&P Quality Score & RobecoSAM Economic Dimension
     
JPX/S&P CAPEX & Human Capital Japan S&P Capex Score & RobecoSAM Human Capital Development Score
     
DJSI Europe Low Volatility Europe Low Volatility & ESG
     
DJSI Europe Diversified High Beta High Dividend Index Europe High Beta, High Dividend & ESG
     
DJSI Diversified Low Volatility / High Dividend Global Low Volatility, High Dividend & ESG