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White Paper: Evaluating Passive Value Strategies

Contributor
Jason Ye
, Associate Director, Strategy Indices
jason.ye@spglobal.com 

EXECUTIVE SUMMARY

  • S&P Dow Jones Indices produces three families of value indices—the S&P Value Indices, the S&P Pure Value Indices, and the S&P Enhanced Value Indices.  These families were developed with specific objectives in mind and have nuances of which market participants should be aware.  In this paper, we use the S&P 500® Value, the S&P 500 Pure Value, and the S&P 500 Enhanced Value Index to illustrate the differences.
  • The S&P 500 Value is a broad market, capitalization-weighted index with a large investment capacity for products tracking the index.  This makes it a relevant benchmark for performance evaluation, as well as making it suitable for those seeking a traditional “buy-and-hold” index-linked investment implementation with a tilt toward value style.  By design, this index has lower value exposure than the S&P 500 Pure Value and the S&P 500 Enhanced Value Index, as well as a lower tracking error against the S&P 500. 
  • The S&P 500 Pure Value is a high conviction value index.  It aims for a higher exposure to the value style than the S&P 500 Value. Its style score weighting tilts aggressively toward value securities, but may limit the investment capacity of the products tracking this index relative to those tracking the S&P 500 Value and the S&P 500 Enhanced Value Index.
  • The S&P 500 Enhanced Value Index balances the tradeoff between value exposure and the capacity of products tracking the index.  Its modified cap weighting targets the value factor while maintaining weights tied to market capitalization.

Read the full paper.

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