Index provider of the year: S&P Dow Jones Indices

Asia Risk Awards 2019

Robin Lo, S&P Dow Jones Indices

S&P Dow Jones Indices has displayed exceptional prowess in meeting the needs of both local and global clients over the past 12 months, supporting a wide range of activity in order to service customers at every level, despite stiff competition from aggressive incumbents and newcomers alike.

“The Asia-Pacific index market is very competitive,” says Robin Lo, head of Asia-Pacific at S&P Dow Jones Indices. “In addition to the existing exchange-traded fund providers there are many new players moving into the market while there are very dominant local firms for providers.”

The pressures the firm faces are not just local. Global buy-side firms are increasingly competing for fees when serving retail and institutional investors. At the end of March there were 1,039 exchange-traded products linked to S&P indexes around the world, with assets under management of those tracking the indexes standing at estimated $1.48 trillion.

“One of the biggest challenges in the index industry is competitive pressure on cost,” says Lo. “Some of our biggest clients are ETF issuers. ETF costs are becoming very low, seven or eight basis points in some cases. This pricing pressure might get passed on to index providers, but we always want to ensure the data integrity and accuracy. That has an associated cost. So, while we see the price discussion as a trend, we do not see downward pressure as a healthy trend.”

A major element in helping to overcome these pressures has been the ability of S&P Dow Jones Indices to develop products at speed in order to support the latest investment models, including environmental, social and governance (ESG) and factor investing.

The firm was able to show off its ESG credentials in September, when Japan’s Government Pension Investment Fund chose the S&P Global Ex-Japan LargeMidCap Carbon Efficient Index, the S&P Global LargeMidCap Carbon Efficient Index and the S&P/JPX Carbon Efficient Index as the benchmarks for its ESG investment strategy.

S&P Dow Jones Indices’ support for factor investing has numerous examples, including the S&P China A-Share Factor Index Series, which was launched in May 2018. The series consists of smart beta indexes covering the China A-shares market in order to support value, volatility, momentum, quality and dividend strategies for both domestic and international investors. Bridging investment into and out of the region is a core strength of the business, Lo says.

“In order to compete with local index providers who have very big local market shares, we leverage our global experience and local networks to help customers go global,” he says. “For example, we work with global asset managers to launch products in local markets and with local asset managers to launch products in international markets.”

One of the biggest challenges in the index industry is competitive pressure on cost

Robin Lo, S&P Dow Jones Indices

This does not always mean that the firm’s bets are already covered by client money. Lo says that, as well as building bespoke tailored solutions to meet particular client needs, S&P Dow Jones Indices is also willing to put products on the shelf ahead of any commercial arrangements.

“We are ready for clients if they want to reach out to us, as we already have a solution for them,” he says. “We work very closely with partners to develop customer solutions, such as non-standard index products, designing index methodologies in order to achieve their goals.”

Over the past year S&P Dow Jones Indices has worked with a range of clients in the region, including Bangkok Capital Asset Management and FactSet in Hong Kong. In South Korea, its product launches have included the S&P Global 1200 Information Technology Index and Interactive Media and Services Index.

S&P Dow Jones Indices has not only shown commitment to its clients through the products that it has launched, but also through the level of engagement, support and education that it has offered to them.

“A key part of our job is to help clients grow their assets under management, so that their licencing of our indexes is a win-win situation,” Lo explains. “After they license an index we work with them so that they can promote the products together with us. For example, when there is an investment product that tracks our index, it is important for us to explain how we construct the underlying index and what exposure the potential investors will gain from such a strategy.”

Lo says that supporting clients during this period of development has really delivered value for customers and helped drive business growth.

“There are many index providers in the market, but clients repeatedly choose us for the marketing and education efforts we make for them,” he says.

Roughly a quarter of S&P Dow Jones Indices’ total education and thought leadership budget is invested in the Asia-Pacific region. Lo says that this is expected to grow in the coming years.

“The team is dedicated to producing research papers, as well as focusing on our indexes and strategy development,” says Lo. “In terms of technology we have different partners globally who are enhancing our capabilities.”