S&P Dow Jones Indices ("S&P DJI"), one of the world's leading index providers, has launched the S&P Global SmallCap Select Index Series, which seeks to mitigate risks in global small-caps by excluding companies without a consistent track-record of positive earnings.
Each index is weighted by float market capitalization, and is a subset of the small-cap segment of the S&P Global BMI (Broad Market Index), except for the S&P/ASX Small Ordinaries Select which is built from the S&P/ASX Small Ordinaries. In order to be eligible for inclusion, companies must post two consecutive years of positive earnings per share.
The Index Series currently includes the following regional indices:
· S&P Global SmallCap Select
· S&P Global ex-U.S. SmallCap Select
· S&P Developed ex-U.S. SmallCap Select
· S&P Emerging SmallCap Select
· S&P/ASX Small Ordinaries Select
With the exception of the S&P/ASX Small Ordinaries Select, the regional indices are based on methodology that excludes the smallest and least liquid 20% of companies within each country by their float market caps and median daily values traded in order to improve the replicability of the indices. The new indices are rebalanced semi-annually.
"Extensive research on U.S. small-cap benchmarks show indices that incorporate earnings eligibility criteria, such as the S&P SmallCap 600, have outperformed other small-cap benchmarks over the long-run. This new index series extends this innovative framework to global equity markets where we have found a similar impact," says Michael Orzano, senior director, global equity indices at S&P Dow Jones Indices.
Orzano suggests focusing on companies that have generated positive earnings has historically provided better long-term total returns with less volatility in global small-caps.