S&P’s Grim Dividend Prediction
Standard & Poor’s announced in early February that it expects 2009 S&P 500 dividends to fall 13.3 percent. Previously, the worst annual decline was in 1942, when dividends fell 16.9 percent. The projected $24.60 dividend rate is equal to about $214.66 billion in dividends for S&P 500 companies in 2009. In 2008, $247.9 billion was paid out, for a dividend rate of $28.39.
S&P analyst Howard Silverblatt said that companies pessimistic about their financial futures will prioritize saving money over paying out dividends. S&P additionally said it was lowering the indicated dividend rate on the S&P 500 from $27.35 to $24.90.
According to S&P’s data, 62 of the S&P 500’s component companies lowered their dividends in 2008, representing a total decrease of $40.6 billion. Not surprisingly, the vast majority of those companies—48 companies, representing $37 billion of that amount—were in the Financials sector.
Financials companies represented 29.1 percent of dividend payments at the close of 2007, with 96.7 percent of them paying cash dividends. At the time of the S&P announcement, those levels had fallen to less than 85 percent of Financials companies and 15 percent of dividends.
Record Decline For Housing In Q4
According to February results (which reflected December data), 2008 was a record year for the S&P/Case-Shiller Home Price indexes—in a bad way.
The S&P/Case-Shiller U.S. National Home Price Index showed its largest quarterly fall in the 21-year history of the indexing series in the fourth quarter of 2008. The drop-off for the broad-based index—which covers all nine U.S. census divisions—represented an 18.2 percent decline from the same period a year ago. With the December data in, S&P noted that domestic home prices have been falling nationwide for two straight years, covering 2007 and 2008. David Blitzer, chairman of the index committee at Standard & Poor’s, said in a statement there was no significant sign of recovery to be found in the data.
As of December, the average U.S. home price was at a similar level as in the third quarter of 2003. From the housing market’s peak in the second quarter of 2006, average home prices are down 26.7 percent.
The worst year-over-year declines were in the sunbelt: Phoenix was down 34.0 percent, Las Vegas down 33.0 percent and San Francisco off 31.2 percent. Meanwhile, Denver, Dallas, Cleveland and Boston fared the best in terms of annual declines, down 4.0 percent, 4.3 percent, 6.1 percent and 7.0 percent, respectively.
On an absolute peak-to-trough basis, Dallas was the best performer, down just 8.6 percent; Phoenix led on the downside, off 45.5 percent from its peak in June 2006. It was one of four cities (Las Vegas, Miami, Phoenix and San Francisco) where housing is down in excess of 40 percent.
FTSE Launches Revamped Global Real Estate Indexes
FTSE Group has launched an expanded version of its FTSE EPRA/NAREIT global real estate index series. As of December 2008, the series’ scope widened to include emerging markets, and the new global indexes have been updated to cover both developed and emerging markets.
The revised structure is designed to allow investors to compare listed real estate performance across regions, development levels and property types. Among the updated indexes are:
- FTSE EPRA/NAREIT Global Index
- FTSE EPRA/NAREIT Global ex US Index
- FTSE EPRA/NAREIT Americas Index
- FTSE EPRA/NAREIT Asia Pacific Index
- FTSE EPRA/NAREIT EMEA Index
- FTSE EPRA/NAREIT Europe Index
- FTSE EPRA/NAREIT Middle East and Africa Index
- FTSE EPRA/NAREIT Developed EMEA Index
S&P Launches Global Carbon Indexes
In March, Standard & Poor’s launched the first in a series of global low-carbon indexes. The indexes, which take a unique approach to the carbon market, seem to be designed to support exchange-traded products.
The S&P U.S. Carbon Efficient Index measures the performance of large-cap U.S. companies with below-average carbon emissions, while seeking to closely track the return of the S&P 500. The index includes constituents of the S&P 500 that have a relatively low carbon footprint, as calculated by the environmental data organization, Trucost Plc. Trucost calculates the carbon intensity of companies by researching and standardizing publicly disclosed information and engaging directly with companies to verify its calculations on an annual basis, according to S&P.
The index is rebalanced quarterly, at which point the stocks in the S&P 500 are ranked by their carbon footprint. The 100 equities with the highest scores and whose aggregate exclusion does not reduce any individual sector weight of the S&P 500 by more than 50 percent are removed.
According to S&P, the average annual carbon footprint of the S&P U.S. Carbon Efficient Index was 48 percent lower than that of the S&P 500.
E-Trade Closes Four Index Mutual Funds
Discount broker E-Trade Financial announced in February that it will close its four index mutual funds, with a total of some $400 million in assets, as of March 27.
According to the firm, a lack of traction in the marketplace and dwindling assets during tough market conditions are the reasons behind the decision.
The largest of the funds is the E-Trade S&P 500 Index (ETSPX). Others are the Russell 2000 Index Fund (ETRUX); the Technology Index Fund (ETTIX) and the International Index Fund (ETINX).
According to MarketWatch.com, E-Trade will continue to operate three actively managed mutual funds. However, it has stopped accepting money in its index funds, and customers who haven’t sold out of the funds by the time they’re liquidated will receive cash payouts.
Argentina Demoted, Pakistan Debated At MSCI
In a Feb. 18 statement, MSCI said it would remove Argentina from its Emerging Markets index at the end of May 2009, due to capital controls in the local market. At that time, the MSCI Argentina Index will join the MSCI Frontier Markets Index. Only ADRs for Argentinean companies will be eligible for inclusion, as opposed to locally listed stocks.
The same press release also opened a consultation on the issue of the MSCI Pakistan Index. Removed from the MSCI Emerging Markets Index at the end of 2008 because of excessive market restrictions, the stand-alone index is now being considered for inclusion in the MSCI Frontier Markets Index at the end of May.
Indexes Adapting To New Environment
In March, MSCI asked its users for comments on a proposal to change how often it reviews the liquidity of components in the investable developed market and emerging market indexes; they are currently reviewed on a semiannual basis, but in light of increased concerns about liquidity, MSCI is considering a quarterly review. Another proposal would also establish minimum levels for the three-month Annualized Traded Value Ratio (ATVR) and three-month frequency of trading. Others address such issues as the use of fair value mechanisms to price suspended securities and when to use depositary receipts rather than local listings.
DJ Launches ‘SAFE’ Indexes
In March, Dow Jones Indexes and the South Asian Federation of Exchanges (SAFE) rolled out two blue-chip indexes, one tracking stocks from several member countries and another tracking the Pakistani market. Both are designed to underlie investable products.
The Dow Jones SAFE 100 Index measures the performance of blue-chip companies in five of the eight member countries of SAFE: India, Bangladesh, Mauritius, Pakistan and Sri Lanka. Fifty of the components are selected from India, while the remaining 50 represent the largest stocks trading on the markets of the other four countries.
The Dow Jones SAFE Pakistan Index is a subset of the Dow Jones SAFE 100 Index, including all the Pakistani stocks on that index’s component list. At the launch of the indexes, that was 39 stocks.
The broad index is calculated in U.S. dollars, while the Pakistan index is calculated in Pakistan rupees. Both are weighted by float-adjusted market capitalization.
FTSE Acquires PBC
Global index provider FTSE Group (FTSE) announced the acquisition of U.S.-based Pensions Benchmark Corporation (PBC) in late January. The quantitative analysis firm’s systems and database will be incorporated into FTSE’s own research operations. FTSE says the acquisition will add to its client support services and enable the creation of new indexes and the provision of performance and risk analysis.
PBC owner Tom Nadbielny has joined FTSE as director of quantitative research. In his new position, he will be responsible for FTSE’s three regional research teams operating in London, New York and Hong Kong.
Markit Changes iTraxx Europe Index Rules
Markit announced two changes to the rules governing the Markit iTraxx Europe credit default swap indices, designed to make the indexes more reflective of the current economic environment. The new rules went into effect before March’s index rolled into series 11 on March 20.
The first change states that constituents of the Markit iTraxx Europe Main Index must include 30 entities from the Auto and Industrial sectors combined. Previously, the index’s methodology required the inclusion of 10 entities from the Auto sector and 20 from the Industrial sector. Markit enacted the change in order to maintain the benchmark’s liquidity.
The second change deals with the types of CDS contracts that are considered for inclusion in the Markit iTraxx Europe Crossover Index, an index that measures the cost of credit insurance on 50 primarily non-Financial companies.
Previously, only contracts requiring a 25 percent up-front payment plus 500 bps running spreads—that is, requiring you to put up 25 percent of the value of the bonds plus pay 5 percent per year to insure against default—were allowed in the index. Now, the index will consider contracts requiring 50 percent up-front payments plus 5 percent payments per year. It’s a sign that more and more companies are trading with a significant risk of default, since up-front payments are usually required by the protection sellers only when this risk is considered high.
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