S&P Dow Jones Indices announced today the launch of the S&P GIVI™ China A-Share, the first index of its kind in the Chinese market to combine low volatility and an alternative weighting scheme that weights a stock by its calculated intrinsic value, rather than market-capitalization.
The S&P GIVI China A-Share index uses the methodology of the base S&P GIVI The 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 capitalization 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.
(“S&P Global Intrinsic Value Index”) which has been licensed by S&P Dow Jones Indices to Goldman Sachs Asset Management (GSAM).
Alexander Matturri, Chief Executive Officer of S&P Dow Jones Indices, said: “With the China Securities Regulatory Commission expanding quotas for foreign investment, investors will have greater opportunities to gain exposure to the China A-shares market which features some of the fastest growing companies in the world. The S&P GIVI China A-Share index presents a unique opportunity for investors to access and measure this important segment of the Chinese market. While we believe that market-capitalization indices will continue to play a critical and growing role in measuring markets worldwide, innovative concepts such as our GIVI indices, that combine different approaches to weighting securities within an index, will present an alternative approach for investors looking to diversify their portfolio beyond traditional market-cap weighting schemes.”
Jim O’Neill, Chairman of Goldman Sachs Asset Management, said: “Prompted by the global financial crisis, investors are seriously questioning their investment philosophy and considering new approaches to asset allocation. As China looks set to become the world’s biggest economy within the next 15 years, the S&P GIVI China A-Share index is, in my view, one of the most relevant benchmarks for investors to access China’s economic activities and growth opportunities.”
The S&P GIVI China A-Share index seeks to provide investors better risk adjusted exposure to the China A-Share market. Using the standard GIVI methodology, this Index combines two investment ideas – low volatility and intrinsic value weighting. The low volatility and value anomalies have been established both empirically and in academia and have gained prominence after the financial crisis as investors have sought equity exposure but at a lower level of risk. The S&P GIVI China A-Share index, through its unique methodology which combines these two factors, seeks to provide investors with higher risk adjusted returns compared to the benchmark, the S&P CITIC All Cap Index while maintaining a modest tracking error.
S&P Dow Jones Indices has licensed the base S&P GIVI (and its complete family of emerging market and developed sub-indices, a total of over 2000 indices across 46 countries and 7 currencies) to Goldman Sachs Asset Management (GSAM). Jim O’Neill, Chairman of GSAM, and Donald Mulvihill, Managing Director at GSAM, conceived the strategy and helped S&P Dow Jones Indices to develop this concept.
The 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 capitalization 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.