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.

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.”