S&P revises growth and value index rules ahead of Dec 21
At least US$375 billion (RM1.53 trillion) in passive funds track the affected benchmarks, according to Bloomberg Intelligence analyst James Seyffart.
S&P Dow Jones Indices will change how it classifies equities as growth or value investments, with revised rules taking effect before trading begins on Dec 21. Adopted following a consultation, the changes will be implemented during the annual index reconstitution.
S&P said its valuation assessment will incorporate free cash flow, intangible assets and forward earnings when determining whether shares are cheap. It will also remove 12-month price momentum from the measures used to assess growth potential.
Funds following the affected benchmarks are expected to alter their portfolios as index membership changes. Bloomberg Intelligence analyst James Seyffart put the passive funds linked to those benchmarks at no less than US$375 billion (RM1.53 trillion).
The revisions aim to recognise research expenditure and assets developed internally, which accounting rules typically classify as expenses. Researchers and fund managers have questioned traditional valuation methods, particularly price-to-book. Critics argue these measures can leave businesses rich in intellectual property looking costly and excluded from value benchmarks.
FTSE Russell is separately consulting on whether to revise its benchmarks’ 50/50 growth-value allocation in response to technology giants’ market dominance. The consultation closes on Dec 11.
