Smart Beta Compass Balancing Risk in a Sustaining Recovery - Q3 2021 11 Institutional Style Flows
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Smart Beta Q3
Compass 2021
Balancing 04 Factor Performance
Risk in a Smart Beta ETF Flows
08
Sustaining 11 Institutional Style Flows
and Holdings
Recovery 15 Factor Fundamentals
19 Factor Correlations
22 Implementing
Smart Beta InvestingA Leader in Smart Beta Index Investing SPDR is a pioneer in both smart beta and ETF investing. For more than a quarter of a century, we have uncovered research-backed insights and formed strong opinions about how to efficiently harvest factor premia and implement them in a portfolio using ETFs. Smart Beta ETFs allow investors the opportunity, with a single trade, to introduce a factor exposure into their portfolio. In the current environment, we continue to see equity investors positioning for the long term, when markets will resume trading on fundamentals. Smart Beta Compass Q3 2021 2
Table of Contents
04 Factor Performance The recovery trade turns to Quality, creating
opportunity in Value and Dividends.
08 Smart Beta Investors continued into Value, with Quality
taking over from Size in Q2.
ETF Flows
11 Institutional While investors take (some) gains in Quality,
Value and Inflation continue to attract attention.
Style Flows
and Positioning
15 Factor Fundamental metrics of specific factor-driven
indices that are tracked by relevant European-
Fundamentals listed Smart Beta ETFs.
19 Factor Correlation of returns for specific factor-driven
indices that are tracked by relevant European-
Correlations listed Smart Beta ETFs.
22 Implementing Seek Stable, Sustainable Dividend Strategies Amid
an Uneven Recovery.
Smart Beta Investing
Smart Beta Compass Q3 2021 3Factor Performance Recent performance of specific factor-driven indices that are tracked by relevant European-listed Smart Beta ETFs. Smart Beta Compass Q3 2021 4
Factor Performance
The charts in this section show the relative performance of each index against a single cap-weighted market
benchmark in three critical geographic regions: World/Global, USA and Eurozone/Europe.
The recovery trade turns to Quality, creating opportunity in Value and Dividends. Following a strong
start to 2021, equity markets continued to move higher in Q2, as the further deployment of vaccines globally
is helping critical markets to reach herd immunity. Investor sentiment remains focused on the pickup in
economic activity. Concerns over markets overheating have caused some volatility along the way.
Despite the pullback in June, Value Exposure Select indices continue to deliver strong year-to-date
performance across all regions. The pullback may be used as a buying opportunity for investors who have
missed the run, as we will see in the next section on investor flows.
World/Global
Global equities advanced 2.61% in Q2, which continued the positive investor sentiment of a broad recovery
in business activity. The MSCI World Index rose further, extending the all-time highs. The recovery-focused
factor exposures (Size and Value) posted their first negative performing month this year in June. Despite
this, the MSCI World Small Cap Index 1.06% (Size) and the MSCI World Value Select 1.68% (Value) still traded
positive overall in quarter. Volatility exposures finally had a good quarter, with the Global Low Volatility Index
up 2.87%, slightly outperforming the World Minimum Volatility Index (2.76%).
Despite Global Dividends underperforming the benchmark in April and June, the exposure was still
positive in Q2. The Global Dividend Aristocrats Index was up 3.10% in April and 3.23% in May, prior to the
June pullback. Investors who have waited for an entry point into global dividends may have their chance.
Most exposures took a pause in June, with only Quality outperforming the market capitalisation-weighted
benchmark. Momentum was again among the worst performing factors in Q2, as it was in Q1.
Relative Monthly Performance
vs. MSCI World Index
3 Percent
2
1
0
-1
-2
-3
-4
-5
Apr May Jun
2021 2021 2021
MSCI World High Div S&P Global Div Aristo MSCI World Min Vol STOXX Global Low Vol
MSCI World Momentum MSCI World Quality MSCI World Small Cap MSCI World Value
MSCI World Value Select
Source: Bloomberg Finance L.P., as of 30 June 2021. Past performance is not a reliable indicator of future performance. Index returns are
unmanaged and do not reflect the deduction of any fees or expenses. See Appendix for index details.
Looking Forward. All signs point to the recovery continuing in Q3 2021, as GDP projections trend positive.
In this setting, Value and Dividends would remain attractive. The pullback of both exposures at the end of Q2
presents an interesting entry point for investors who have missed the recovery trade this year.
Smart Beta Compass Q3 2021 5USA
US equities have continued to lead global markets in 2021, with the S&P® 500 Index advancing nearly 3%
in Q2. Trading over the quarter was a bit more volatile than had been seen to begin the year. As with global
equities, the Quality factor led other indices, mainly due to the contrary move in June (i.e. Quality was the
only factor to outperform the market capitalisation-weighted benchmark). Quality was the only factor
to outperform the S&P® 500 Index for the quarter, supported by the overweight to technology (e.g. chip
makers) and selection in Health Care stocks.
The tailwind behind Value and Dividend exposures continued on a nominal basis. While both factors
traded higher for the quarter, they lagged the broader market. Despite trailing the large cap-bias market
benchmark, the small cap Russell 2000 Index was positive each month in the quarter, including 1.91% in June
when most other factor exposures traded lower.
For the first time this year, Volatility traded close to in line with the market benchmark. This was a stark
reversal from the year-to-date underperformance. Investors may find protection in Low Volatility, despite the
overall positive sentiment towards an extension of the recovery.
Relative Monthly Performance
vs. the S&P® 500 Index
3 Percent
2
1
0
-1
-2
-3
-4
-5
Apr May Jun
2021 2021 2021
MSCI USA High Div S&P US Div Aristo S&P US Min Vol S&P US Low Vol
MSCI USA Momentum MSCI USA Quality USA Small Cap MSCI USA Value
MSCI USA Value Select
Source: Bloomberg Finance L.P., as of 30 June 2021. Past performance is not a reliable indicator of future performance. Index returns are
unmanaged and do not reflect the deduction of any fees or expenses. See Appendix for index details.
Looking Forward. We expect the short term pull back in Dividend and Value Exposure Select experienced
in June to be temporary, with the year-to-date trend to indicate further support for a re-opening rally in US
equities. Dividend Aristocrats have high exposure to stocks specifically expected to benefit from an uptick in
consumer activity.
Smart Beta Compass Q3 2021 6Eurozone/Europe
In Q2, European equities did well to try and close the gap with global equities. In June, the EURO STOXX®
(-2.15%) and MSCI Europe (-1.46%) were the only regional indices to actually trade negative, erasing the lead
these indices had versus the US and Global indices in the quarter at the end of May.
Volatility exposures were the best performing factor. The STOXX Low Volatility Index (up 2.73%)
outperformed the EURO STOXX® by 0.77% in Q2 2021. The Quality factor also experienced a positive
quarter, consistent with the other regions.
The MSCI Value Exposure Select Index (up 2.41%) also slightly outperformed against the market
capitalisation-weighted benchmarks. Providing further benefit for investors playing the re-open trade with
select value.
Defensive factors remained strong in Europe, despite the broad indices capturing a bit of the market rally
early in the Quarter.
Relative Monthly Performance
vs. the EURO STOXX® Index
6 Percent
4
2
0
-2
-4
-6
Apr May Jun
2021 2021 2021
MSCI EMU High Div S&P Euro Div Aristo S&P EMU Min Vol EURO STOXX Low Vol
MSCI Europe Momentum MSCI EMU Quality MSCI Europe Small Cap MSCI Europe Value
MSCI Europe Value Select
Source: Bloomberg Finance L.P., as of 30 June 2021. Past performance is not a reliable indicator of future performance. Index returns are
unmanaged and do not reflect the deduction of any fees or expenses. See Appendix for index details.
Looking Forward. While European equities were stronger in Q2, they still lag US equities. This divergence
maintains a compelling relative valuation opportunity. The relative opportunity to play the recovery through
eurozone equities remains appealing to investors, provided they can protect the portfolio using selective
value or stable dividend approach.
Investors should consider positions in Eurozone Dividend Aristocrats to play a further economic recovery in
2021, as the enhanced income from stable dividend stocks delivers total return while we await the recovery
to reflate earnings. Investors can also continue to play the Value trade using Euro Value Exposure Select
which utilise the light quality touch (selective) and takes a sector neutral approach in targeting opportunities.
Smart Beta Compass Q3 2021 7Smart Beta ETF Flows Recent flows in both European and US-listed Smart Beta ETF flows by their relevant factor exposure. Smart Beta Compass Q3 2021 8
Smart Beta ETF Flows The tables in this section show the nominal net assets gathered by each category, across all geographic regions, over three relevant time periods. The top two and bottom two factor categories in each time period are highlighted. Investors continued into Value, with Quality taking over from Size in Q2. Low Volatility outflows continued in Q2, despite the protective performance in the June market slow down. Both European and US ETF investors continued to take significant steps in positioning the portfolio towards factors which stand to benefit more from a resumption of economic activity, with the European investors opting for a Quality- approach in Q2. US-listed investors continue to pour money into income generating Dividend yield factor strategies. European-listed funds had been following suit, but Dividend ETFs experienced a modest outflow in June. Investors in both regions appear to have reversed course on Size, with European investors slowing inflows and US investors actually producing net outflows in June. European-Listed Smart Beta Flows Smart beta flows were strongly positive in June ($2.2 billion) as equity markets experienced a rare month of price volatility relative to the year-to-date trend. These June inflows increased overall flows to $6.6 billion (in Q2) and $17.3 billion (year to date). Value continued to lead all factor exposures, over all time periods, with $1.5 billion into Value ETFs in June and $4.5 billion for the quarter. Quality took over from Size as the second strongest factor exposure, in June and for the quarter, as investors chased the performance by using Quality to protect the portfolio. The commitment of European ETF investors to Value exposures over all time periods remains an impressive sentiment signal. Dividend factor strategies were the third strongest inflows in Q2 $527 million moving the factor further into positive for the year. Volatility exposures continue to see outflows, with $586 million of outflows in Q2, despite the relative performance in areas like eurozone Low Volatility. Multifactor factor exposures remain negative over the past 12 months with $891 million in net outflows. European-Listed Smart Beta Flows ($ Millions) Factor Category June 2021 Trailing 3 months Year to Date Last 12 months Dividend -57 527 1,211 -172 Growth 49 93 34 121 Volatility -168 -586 -673 -2,596 Momentum 223 309 1,473 2,386 Multifactor -20 154 203 -891 Quality 585 1,144 865 273 Size 16 465 3,504 6,454 Value 1,534 4,496 10,712 14,386 Total 2,162 6,601 17,330 19,961 Source: Bloomberg Finance L.P., as of 30 June 2021. Flows are as of date indicated and shouldn't be relied thereafter. Smart Beta Compass Q3 2021 9
US-Listed Smart Beta Flows Flows into US-listed smart beta ETFs have been highly focused in pro-recovery factors (Value and Dividend Yield). The $5.3 billion of inflows in June to Dividend and Value ETFs account for virtually all of the net increase in smart beta assets (net flows in the remaining factors offset one another). Flows into Dividend ETFs have been especially strong, as investors look to benefit from a pickup of economic activity. While Value ETFs are also attracting assets on the recovery theme, the consistency in which investors are buying yield-factor Dividend ETFs is significant. The inflows to Dividends occurred as US-listed ETF investors continue to pull assets out of Volatility ETFs. Volatility ETFs lost a further $1.5 billion (June) and $5.2 billion (in Q2), extending the losing streak to 16 consecutive months of net outflows. As was the case with European investors, US ETF assets tend to be allocating towards Quality $1 billion (June) and $1.6 billion (in Q2) to play the market volatility experience in the quarter. Overall, net flows in Quality remain negative in 2021 despite the positive June. The opposite is true for Growth exposures, which lost nearly $200 million in June but remain positive $1.5 billion this year. Momentum experienced inflows in June (negative for the quarter), despite the poor performance of the factor. Looking ahead, all signs point to a continued recovery in global equities in 2021, so we will be watching to see if the inflows continue to the pro-recovery factor-based smart beta ETFs. US-Listed Smart Beta Flows ($ Millions) Factor Category June 2021 Trailing 3 months Year to Date Last 12 months Dividend 4,304 14,928 23,494 30,441 Growth -198 334 1,546 1,794 Volatility -1,513 -5,215 -14,239 -22,781 Momentum 491 -668 1,114 2,571 Multifactor 183 808 -79 499 Quality 1,084 1,630 -433 1,188 Size -105 2,624 6,780 10,073 Value 1,085 6,524 12,790 16,018 Total 5,331 20,965 30,973 39,803 Source: Bloomberg Finance L.P., as of 30 June 2021. Flows are as of date indicated and shouldn't be relied thereafter. Smart Beta Compass Q3 2021 10
Institutional Style Flows and Holdings A snapshot of the cross-sectional patterns of institutional equity flows and holdings. Smart Beta Compass Q3 2021 11
Institutional Style Positioning
The analysis covers 10 style dimensions; Beta, Idiosyncratic Volatility, Dividend Yield, Inflation Exposure,
Value/Growth, Relative Value to History, Relative Value to Industry, Size, Price Momentum and Relative
Efficiency (further referred to as Relative Quality). See page 28 for full style definitions.
While investors have taken (some) gains in Quality, Value and Inflation have continued to attract
attention. The holdings of Inflation Exposure stocks are now overweight following strong 20- and 60-day
trend inflows. Relative Value (Industry) and high Dividend Yield stocks have seen strong inflows, but remain
under-owned, in terms of relative historical positioning. While Relative Value (History) moved to overweight
in June.
The lightest relative positioning in style exposures is in Price Momentum, which remain depressed and has
been experiencing strong outflows. The strongest overweight holdings, compared to historical positioning,
are in Quality stocks (higher Return-on-Equity), despite the trend outflows.
Flows have reversed significantly in smaller market capitalisation (Size) stocks from the 60- to 20-day trend,
going from modestly negative to decidedly positive. Positioning in Size remains neutral, a somewhat positive
sign given the volatility in small cap equities experienced in Q2.
Institutional Style Basis Points (of Market Cap)
Positioning -0.15 -0.10 -0.05 0.00 0.05 0.10 0.15
(Quarter End)
Relative Quality
Holdings (Lower)
20d Flows
Relative Value (History)
60d Flows
Inflation Exposure
Beta
Size
Idiosyncratic Volatility
Value/Growth
Relative Value (Industry)
Dividend Yield
Price Momentum
Percentile (20+ Years)
Source: State Street Global Markets as of 1 July 2021. Flows are as of the date indicated, are subject to
change, and should not be relied upon as current thereafter.
Smart Beta Compass Q3 2021 12Trend Flows
In addition to the latest investor positioning in each of the significant style dimensions, the active flows
trend can provide further context on investor sentiment.
Below we analyse trends in active flows across two time series: daily change in 60-day trend flows over the past
year and daily change in 20-day trend flows over the past quarter. Each chart provides context on the trend of
investor flows leading up to the quarter-end positioning (see Figure on previous page).
60-day trend flows concentrated toward the end of Q2, as dispersions across style dimensions diminished.
Smaller market capitalisation stocks (Size) turned negative (net outflows) to begin the quarter before moving
back to neutral. Looking at the 20-day trend, we can see this reversal more clearly and Size flows finished the
quarter decidedly positive. The stocks with high Idiosyncratic Volatility and attractive Relative Value (History)
have experienced positive 60-day trend flows but experienced acceleration toward the end of Q2, when the
20-day trends increased for both.
Investors have bought stocks with higher Inflation Exposure, as the 60-day flow trend on these stocks went
positive to begin Q2 and accelerated throughout (as seen in the steep upslope of the 20-day trend line into
quarter end). Relative Quality, Beta and Price Momentum flows were all negative on both the 60- and 20-day
trends. Although, this appears to have different effects on investor positioning, given the price action in these
stocks. The selling of Beta and Momentum continued to reduce the exposure to these style dimensions.
Institutional Style 0.25 Basis Points (of Market Cap)
Active Flow 0.20
(60d Flow Trend, 0.15
Last 1 Year) 0.10
0.05
Beta 0.00
Inflation Exposure -0.05
Dividend Yield -0.10
-0.15
Idiosyncratic Volatility
-0.20
Size Jul Sep Nov Jan Mar May Jul
Price Momentum 2020 2020 2020 2021 2021 2021 2021
Relative Quality
Source: State Street Global Markets as of 1 July 2021. Flows are as of the date indicated, are subject to
Relative Value (History)
change, and should not be relied upon as current thereafter. This information should not be considered
Relative Value (Industry) a recommendation to invest in a particular style. It is not known whether the factors shown will be
profitable in the future.
Value/Growth
0.15 Basis Points (of Market Cap)
Institutional Style
Active Flow 0.10
(20d Flow Trend,
0.05
Last Quarter)
0.00
Beta
-0.05
Inflation Exposure
Dividend Yield -0.10
Idiosyncratic Volatility -0.15
Apr May Jun Jul
Size
2021 2021 2021 2021
Price Momentum
Relative Quality
Source: State Street Global Markets as of 1 July 2021. Flows are as of the date indicated, are subject to
Relative Value (History) change, and should not be relied upon as current thereafter. This information should not be considered
Relative Value (Industry) a recommendation to invest in a particular style. It is not known whether the factors shown will be
profitable in the future.
Value/Growth
Smart Beta Compass Q3 2021 13Trend Holdings
In addition to the latest investor positioning in each of the significant style dimensions, the historical
holdings trend can provide further context on investor sentiment.
The below time series shows the monthly change in investor holdings over the past year. This chart provides
expanded context on the trend of investor holdings leading up to the quarter end positioning (see Figure on page 12).
Holdings in Relative Value (History) stocks saw an uptick in Q2, ending comfortably overweight for the first
time in a long time. The relative Value/Growth trade had been building over the last year but experienced
some volatility in Q2, around the neutral level, settling slightly underweight. Small cap (Size) stocks declined
in Q2. Size went from comfortably overweight to neutral, following a volatile quarter for small cap stocks
and flows. Conversely, stocks with higher Inflation Exposure went from neutral at the beginning of Q2 to
overweight in July, in part due to the accelerating inflows discussed in the previous section.
Holdings in Relative Quality stocks increased their overweight during Q2, despite strong outflows.
This suggests the rally experienced in quality stocks has outpaced the profit-taking of investor outflows.
The underweight positions in Value (by Industry and versus Growth) and high Dividend Yield stocks,
combined with the strong inflows, suggest that despite the volatility in Q2, investors are still adding to the
recovery trade.
Institutional Style
Percentile (20+ Years)
Monthly Holdings 100
(Last 1 Year)
Beta 75
Inflation Exposure
Dividend Yield 50
Idiosyncratic Volatility
Size
25
Price Momentum
Relative Quality
0
Relative Value (History) Jul Sep Nov Jan Mar May Jul
Relative Value (Industry) 2020 2020 2020 2021 2021 2021 2021
Value/Growth
Source: State Street Global Markets as of 1 July 2021.
Institutional Style Holdings (Last Quarter)
April 2021 May 2021 June 2021 July 2021
Beta 0.78 Relative Quality 0.79 Relative Quality 0.72 Relative Quality 0.84
Overweight
Relative Quality 0.72 Beta 0.72 Value/Growth 0.64 Relative Value (History) 0.67
Size 0.61 Size 0.50 Beta 0.63 Inflation Exposure 0.57
Value/Growth 0.59 Size 0.56 Beta 0.53
Relative Value (History) 0.54
Idiosyncratic Volatility 0.50
Inflation Exposure 0.47 Inflation Exposure 0.46 Relative Value (Industry) 0.46 Size 0.49
Idiosyncratic Volatility 0.45 Value/Growth 0.44 Inflation Exposure 0.45 Idiosyncratic Volatility 0.45
Underweight
Relative Value (History) 0.41 Idiosyncratic Volatility 0.42 Dividend Yield 0.32 Value/Growth 0.41
Relative Value (Industry) 0.24 Relative Value (History) 0.42 Price Momentum 0.03 Relative Value (Industry) 0.27
Dividend Yield 0.21 Relative Value (Industry) 0.21 Dividend Yield 0.18
Price Momentum 0.02 Dividend Yield 0.16 Price Momentum 0.09
Price Momentum 0.02
Source: State Street Global Markets as of 1 July 2021.
Smart Beta Compass Q3 2021 14Factor Fundamentals Fundamental metrics of specific factor-driven indices that are tracked by relevant European-listed Smart Beta ETFs. Smart Beta Compass Q3 2021 15
Fundamental Factor Metrics As of 30 June 2021 For context the table includes popular market capitalisation-weighted benchmarks in each of the three critical geographic regions: World/Global, USA and Eurozone/Europe. Region/Index Price-to-Earnings Price-to-Book EV-to-EBITDA ROE Dividend Yield World/Global Factors MSCI World Index* 19.61 3.05 12.94 14.61 1.82 STOXX® Global 1800 Index* 19.99 3.02 13.49 14.34 1.83 MSCI World High Div 13.97 2.55 10.13 19.06 3.61 S&P Global Div Aristo 12.21 1.29 8.76 10.60 4.88 MSCI World Min Vol 20.34 3.20 9.45 12.75 2.05 STOXX Global Low Vol 19.29 3.08 12.79 15.20 2.63 MSCI World Momentum 18.04 2.84 11.99 15.43 1.57 MSCI World Quality 23.45 7.09 15.84 42.69 1.38 MSCI World Small Cap* 21.31 1.14 12.62 9.09 1.51 MSCI World Value 14.57 1.95 10.00 10.63 2.87 USA Factors S&P® 500 Index* 21.32 4.35 14.41 27.28 1.39 MSCI USA Index* 21.92 4.48 15.04 27.51 1.34 S&P US Div Aristo 17.37 2.43 11.34 14.55 2.89 S&P US Min Vol 21.99 4.66 14.57 25.65 1.69 S&P US Low Vol 20.61 4.49 14.10 24.36 2.13 MSCI USA Momentum 20.45 3.25 14.81 11.93 0.84 MSCI USA Quality 24.36 8.15 17.33 44.28 1.02 US Small Cap* 30.99 2.10 14.57 52.01 0.90 MSCI USA Value 16.39 2.81 11.64 16.30 2.30 Eurozone/Europe Factors EURO STOXX® Index* 17.19 1.83 10.21 8.67 2.62 MSCI Europe Index* 16.19 2.04 9.96 9.17 2.96 S&P Euro Div Aristo 15.75 1.87 9.67 11.40 3.66 MSCI EMU Min Vol 19.13 2.25 10.66 9.26 2.62 EURO STOXX Low Vol 19.07 2.12 11.87 12.18 2.82 MSCI Europe Momentum 13.34 1.68 8.21 9.02 3.30 MSCI Europe Small Cap* 19.55 0.49 12.99 5.02 2.36 MSCI Europe Value 11.83 1.29 7.35 8.61 4.28 Source: Bloomberg Finance L.P., as of 30 June 2021. See Appendix for index details. *Market cap-weighted index. Smart Beta Compass Q3 2021 16
Market Factor Exposure
As of 1 July 2021
The following charts show the baseline factor exposure in each capitalisation-weighted benchmark for the
three critical geographic regions: World, USA and Europe. The percentages in the legend represent the
relative weight of each sector in the benchmark.
Market FaCS
Exposure by Sector
(MSCI World Index) FaCS Volatility
Technology (22.02%)
Financials (13.58%)
Health Care (12.58%)
Consumer
Discretionary (12.03%) FaCS Value
Industrials (10.6%)
Communication
Services (9.14%)
Consumer
Staples (7.02%)
Materials (4.4%)
FaCS Size
Energy (3.19%)
Utilities (2.74%)
Real Estate (2.7%)
FaCS Quality
FaCS Momentum
FaCS Liquidity
FaCS Growth
-1.0 -0.5 0.0 0.5 1.0
Source: MSCI BarraOne, as of 1 July 2021. FaCS stands for MSCI Factor Classification Standards.
Smart Beta Compass Q3 2021 17Market Factor Exposure
As of 1 July 2021
The following charts show the baseline factor exposure in each capitalisation-weighted benchmark for the
three critical geographic regions: World, USA and Europe. The percentages in the legend represent the
relative weight of each sector in the benchmark.
Market FaCS
FaCS Volatility
Exposure by Sector
(MSCI USA Index)
FaCS Value
Technology (28.09%)
Financials (10.97%)
FaCS Size
Health Care (13.24%)
Consumer
Discretionary (12.00%)
FaCS Quality
Industrials (8.51%)
Communication
Services (11.32%) FaCS Momentum
Consumer
Staples (5.66%)
Materials (2.54%) FaCS Liquidity
Energy (2.62%)
Utilities (2.4%)
FaCS Growth
Real Estate (2.67%)
-1.0 -0.5 0.0 0.5 1.0
Source: MSCI BarraOne, as of 1 July 2021. FaCS stands for MSCI Factor Classification Standards.
Market FaCS FaCS Volatility
Exposure by Sector
(MSCI Europe Index)
FaCS Value
Technology (8.18%)
Financials (15.76%)
FaCS Size
Health Care (14.11%)
Consumer
Discretionary (12.14%) FaCS Quality
Industrials (14.77%)
Communication
Services (3.91%) FaCS Momentum
Consumer
Staples (12.87%)
FaCS Liquidity
Materials (8.23%)
Energy (4.46%)
Utilities (4.22%) FaCS Growth
Real Estate (1.34%)
-1.5 -1.0 -0.5 0.0 0.5 1.0 1.5
Source: MSCI BarraOne, as of 1 July 2021. FaCS stands for MSCI Factor Classification Standards.
Smart Beta Compass Q3 2021 18Factor Correlations Correlation of returns for specific factor-driven indices which are tracked by relevant European listed Smart Beta ETFs. Smart Beta Compass Q3 2021 19
Factor Correlations The analysis is presented in two distinct correlation matrices. The table on this page shows the correlation of returns for each factor-driven index (“Factors”) against a single cap-weighted market benchmark (“Index”) in three critical geographic regions: World/Global, USA and Eurozone/Europe. The results are displayed in order from strongest correlation to weakest. Diversification with Defence and Select. The lowest correlated indices in global equities to the benchmark index are Global Dividend Aristocrats and Global Low Volatility. Low Volatility and Dividend Aristocrats generally have a relatively lower correlation to the benchmark index, as compared to Min Volatility and High Dividend, respectively. The stable dividend (Aristocrats) and unconstrained (Low Volatility) exposures tend to offer investors relatively attractive diversification opportunities. Factor Correlation Coefficients (Last 3 Years) r World/Global Factors r USA Factors r Euro Factors 0.98 Index Quality 0.98 Index Quality 0.98 Index High Div 0.96 Index Small Cap 0.97 Index Min Vol 0.98 Index Value Select 0.96 Index Value 0.96 Index Value 0.97 Index Value 0.96 Index High Div 0.94 Index High Div 0.97 Index Min Vol 0.94 Index Value Select 0.94 Index Value Select 0.96 Index Quality 0.94 Index Momentum 0.94 Index Div Aristo 0.96 Index Div Aristo 0.91 Index Min Vol 0.92 Index Momentum 0.95 Index Small Cap 0.89 Index Div Aristo 0.92 Index Small Cap 0.93 Index Low Vol 0.88 Index Low Vol 0.86 Index Low Vol 0.88 Index Momentum Source: State Street Global Advisors, Bloomberg Finance L.P., as of 30 June 2021. The second table (see next page) shows the correlation of the excess returns for every potential combination of factor-driven indices that are tracked by relevant European-listed Smart Beta ETFs. The excess returns are calculated using a single cap-weighted market benchmark in three critical geographic regions: World/Global, USA and Eurozone/Europe. A larger positive number indicates that the correlation of excess returns is strong and directionally consistent. A larger negative number indicates that the correlation of excess returns is strong but directionally inconsistent. A smaller positive or negative number indicates that the correlation of excess returns is not strong. The results are displayed in numerical order from highest (positive) to lowest (negative). Global/World. Dividend Aristocrats and Value have the second strongest correlation of excess returns (0.82), trailing only Min/Low Volatility. Substituting in Value Select for Value would have significant reduced (-0.27) the correlation of excess returns to Dividend Aristocrats. USA. The strongest negatively correlated factor pairs, in terms of excess returns is between Momentum and Value strategies in US equities. Substituting in Value Select for Value would have significant reduced (-0.27) the correlation of excess returns to Dividend Aristocrats. Eurozone/Europe. The correlation of excess returns of High Dividend and Dividend Aristocrats strategies is relatively low (0.47) in the past 3 years, compared to the USA and Global equities. Dividend Aristocrats and Value Select are among the least correlated factors (0.10) in terms of excess returns, providing a good diversification opportunity. Smart Beta Compass Q3 2021 20
Factor Correlations (cont’d) Factor Pairs Correlation Coefficient of Excess Returns (Last 3 Years) r World/Global Factors r USA Factors r Euro Factors 0.91 Min Vol Low Vol 0.88 Div Aristo Value 0.83 Value Value Select 0.82 Div Aristo Value 0.81 Min Vol Low Vol 0.82 High Div Min Vol 0.75 Value Value Select 0.75 Value Value Select 0.77 Min Vol Low Vol 0.65 High Div Min Vol 0.75 High Div Div Aristo 0.75 Low Vol Momentum 0.59 High Div Value 0.73 High Div Value 0.71 Momentum Quality 0.57 High Div Low Vol 0.68 Small Cap Value Select 0.59 Min Vol Momentum 0.55 Div Aristo Value Select 0.62 High Div Low Vol 0.53 Div Aristo Low Vol 0.45 Momentum Quality 0.61 Div Aristo Value Select 0.49 Low Vol Quality 0.45 High Div Value Select 0.61 High Div Min Vol 0.48 High Div Low Vol 0.44 Div Aristo Small Cap 0.37 Div Aristo Low Vol 0.47 High Div Div Aristo 0.41 High Div Div Aristo 0.30 Low Vol Value 0.41 Min Vol Quality 0.39 Min Vol Quality 0.30 High Div Value Select 0.40 Div Aristo Min Vol 0.36 Min Vol Momentum 0.27 Div Aristo Small Cap 0.24 High Div Value 0.27 Low Vol Momentum 0.26 Small Cap Value 0.24 Div Aristo Small Cap 0.26 Small Cap Value 0.24 Div Aristo Min Vol 0.24 High Div Momentum 0.20 Small Cap Value Select 0.21 Min Vol Value 0.23 High Div Value Select 0.18 Div Aristo Low Vol 0.15 Min Vol Quality 0.22 Div Aristo Momentum 0.11 Low Vol Quality 0.14 Momentum Quality 0.19 Div Aristo Value 0.08 Low Vol Value 0.11 Low Vol Momentum 0.16 Momentum Small Cap 0.04 High Div Quality 0.02 Min Vol Momentum 0.12 Quality Small Cap -0.03 Div Aristo Min Vol -0.06 High Div Quality 0.10 Div Aristo Value Select -0.05 Min Vol Value -0.07 Low Vol Quality 0.10 Small Cap Value Select -0.16 Low Vol Value Select -0.09 Momentum Small Cap 0.08 Low Vol Small Cap -0.19 Min Vol Value Select -0.21 Low Vol Value Select 0.03 High Div Quality -0.29 Momentum Small Cap -0.22 Min Vol Value Select -0.03 Div Aristo Quality -0.30 High Div Momentum -0.24 High Div Small Cap -0.09 Small Cap Value -0.36 Quality Value Select -0.40 Quality Value -0.12 Min Vol Value -0.38 High Div Small Cap -0.42 High Div Momentum -0.15 Min Vol Value Select -0.41 Low Vol Small Cap -0.44 Div Aristo Quality -0.16 Min Vol Small Cap -0.59 Min Vol Small Cap -0.44 Low Vol Small Cap -0.21 High Div Small Cap -0.60 Div Aristo Momentum -0.44 Quality Small Cap -0.32 Low Vol Value -0.61 Quality Value -0.47 Div Aristo Momentum -0.44 Low Vol Value Select -0.61 Quality Small Cap -0.48 Min Vol Small Cap -0.48 Momentum Value -0.66 Momentum Value Select -0.51 Quality Value Select -0.51 Momentum Value Select -0.69 Div Aristo Quality -0.54 Momentum Value Select -0.59 Quality Value Select -0.79 Momentum Value -0.65 Momentum Value -0.63 Quality Value Source: State Street Global Advisors, Bloomberg Finance L.P., as of 30 June 2021. Smart Beta Compass Q3 2021 21
Implementing Smart Beta Investing State Street Global Advisors has identified the key considerations for investors in the coming quarter, and how markets can be navigated using SPDR® ETFs. Smart Beta Compass Q3 2021 22
Implementing Smart Beta Investing
This section contains our market outlook for the coming quarter, as well as the complete listings and recent
standard performance for all factor-based, Smart Beta SPDR® ETFs.
Q3 Market Outlook: Seek Stable, Sustainable Dividend Strategies Amid Uneven Recovery
In the Q2 market outlook, we highlighted a continued opportunity to play the recovery trade as economic
activity was picking up. We expected dividend stocks to take over from value, which had been the best
performing factor in Q1, to give investors the best opportunity to play the re-opening.*
As covered in the Factor Performance section, it appears we may have been early on dividends as market
volatility produced mixed results, especially in June. We pointed to analyst expectations that stabilised cash
flows would support dividend growth. Ultimately, it appears that recovery expectations were too positive,
as fears of run-away inflation from an overheating economy or, worse, a response in monetary policy, led to
intermittent volatility.
While investors putting more assets into dividend and value stocks (see the flows sections of this document)
may have been early, inflation fears would not suggest they were wrong. We join the consensus view that the
inflation is a transitory dislocation between supply and demand as we emerge from a global lockdown. In a
sense, consumers’ willingness to consume is front-running producers’ ability to re-stock the shelves, from
both a manufacturing and service standpoint, thus driving pricing temporarily higher. The market is expected
to digest these dislocations and allow investors to re-focus on earnings.
We still expect dividend stocks to perform well as the economic recovery plays out. Specifically, Dividend
Aristocrats companies should benefit from the pick-up of consumer activity. The stocks that may benefit
the most are corporations with high operating leverage, where increases in activity are driving through to the
bottom line at a higher margin. This should justify the dividend increases projected by analysts, which could
possibly still be underestimated if the recovery is robust. The lack of strong flows and underweight holdings
of dividends stocks, demonstrated in previous sections of this document, suggest investors likely have
not yet missed the trade. The extension of the recovery should see investors considering an allocation to
dividend strategies, perhaps using smart beta ETFs to play this theme.
FaCS Active Exposure
Comparison
(vs. MSCI ACWI Index)
2
1
0
-1
-2
FaCS FaCS FaCS FaCS FaCS FaCS FaCS FaCS
Yield Value Liquidity Quality Volatility Momentum Growth Size
S&P® Global ESG Dividend Aristocrats Quality Income Index S&P® US ESG Dividend Aristocrats Index
S&P® Euro ESG Dividend Aristocrats Index Significance Level (±0.2)
Source: State Street Global Advisors, S&P Dow Jones Indices, BarraOne as of 21 July 2021. Comparison benchmark is the MSCI ACWI
Index. FaCS stands for MSCI Factor Classification Standards. This information should not be considered a recommendation to invest in a
particular sector or to buy or sell any security shown. It is not known whether the sectors or securities shown will be profitable in the future.
*Source: Bloomberg Finance L.P., as of 30 June 2021.
Smart Beta Compass Q3 2021 23We believe that the first half of 2021 was just the beginning and the recovery trade will continue through the end of the year. The advantage that growth stocks experience from ultra-low interest rates may be reduced if yields continue to rise as inflation picks up. Central banks (globally) will continue to monitor economic activity but have demonstrated a willingness to let the recovery continue. We expect the gap between growth and value to continue to close. Value factor ETF exposures have seen significant reflation. We believe Dividend Yield exposures — which also tend to display significant value factor exposure (Figure 1) — will begin benefiting from a resumption of the real economy. In Europe, where recovery concerns are a bit elevated, Euro Dividend Aristocrats additionally provide significant low volatility exposure, which outperformed in Q2 (see performance section). The foundational philosophy of the Dividend Aristocrats strategies has long been an explicit focus on companies with a long-term track record of stable dividends (and dividend growth). This is considered a well- established approach to investing, targeting quality income from dividend stocks. With the addition of new ESG screens to the selection process, the S&P Dividend Aristocrats® ESG indices bring focus to dividend payers with sustainable/ethical business practices. This combination of sustainable investing with stable dividends comes at a helpful time for investors seeking to increase their dividend exposure in the recovery, while also looking to increase the ESG consideration in the portfolio. Investors who were early to the dividend trade should be wary of pulling out too soon and not benefiting from the full recovery of the global economy. As we head into the second half of 2021, investors optimistic about the economic momentum behind dividend stocks can consider the SPDR® S&P® Dividend Aristocrats ESG UCITS ETFs, which are now available in three regional exposures: USA, eurozone and Global. How Can Investors Navigate This Theme? Investors seeking a diversified approach to playing the recovery trade through a stable dividend strategy can consider a Dividend Aristocrats ESG allocation across three major regions. We highlight below the ESG market indices, but Dividend Aristocrats strategies are also available in non-ESG versions of the same regions and other country (United Kingdom), regional (Pan Asia) and emerging market exposures. • Global: SPDR® S&P® Global Dividend Aristocrats ESG UCITS ETF The SPDR® S&P® Global Dividend Aristocrats ESG UCITS ETF seeks to fully replicate the S&P® Global ESG Dividend Aristocrats Quality Income Index, which is designed to measure the dividend yield-weighted performance of 100 of the highest dividend yielding S&P DJI ESG Score-screened companies within the S&P Global BMI that meet specific ESG and fundamental criteria and have followed a managed-dividends policy of increasing or stable dividends for at least ten consecutive years. • USA: SPDR® S&P® U.S. Dividend Aristocrats ESG UCITS ETF The SPDR® S&P® U.S. Dividend Aristocrats ESG UCITS ETF seeks to fully replicate S&P ESG High Yield Dividend Aristocrats® Index, which is designed to measure the dividend yield weighted performance of S&P DJI ESG Score-screened companies within the S&P Composite 1500 that meet specific ESG criteria and have followed a managed-dividends policy of consistently increasing dividends every year for at least 20 years. • Eurozone: SPDR® S&P® Euro Dividend Aristocrats ESG UCITS ETF The SPDR® S&P® Euro Dividend Aristocrats ESG UCITS ETF seeks to fully replicate the S&P Euro ESG High Yield Dividend Aristocrats® Index, which is designed to measure the dividend yield-weighted performance of 40 of the highest dividend yielding S&P DJI ESG Score-screened Eurozone companies within the S&P Europe BMI that meet specific ESG criteria and have followed a managed-dividends policy of increasing or stable dividends for at least ten consecutive years. Smart Beta Compass Q3 2021 24
Listings of SPDR ETF Smart Beta Range
Range ETF ISIN AUM TER Primary LSE LSE LSE SIX Borsa Euronext
($mn) Ticker (£) (€) ($) (CHF) Italiana (€)
(Xetra) (€)
Dividend SPDR® S&P® U.S. Dividend
Aristocrats IE00B6YX5D40 3,123 0.35 SPYD USDV UDVD USDV USDV
Aristocrats UCITS ETF
SPDR® S&P® Dividend
IE00B979GK47 31 0.40 SPPD USDE USDE
Aristocrats EUR Hdg UCITS ETF
SPDR® S&P® Euro Dividend
IE00B5M1WJ87 1,871 0.30 SPYW EUDV EUDI EUDV EUDV EUDV
Aristocrats UCITS ETF
SPDR® S&P® Global Dividend
IE00B9CQXS71 823 0.45 ZPRG GBDV GLDV GLDV GLDV
Aristocrats UCITS ETF
SPDR® S&P® Pan Asia Dividend
IE00B9KNR336 212 0.55 ZPRA PADV ASDV PADV PADV
Aristocrats UCITS ETF
SPDR® S&P® UK Dividend
IE00B6S2Z822 175 0.30 SPYG UKDV UKDV
Aristocrats UCITS ETF
SPDR® S&P® Emerging Markets
IE00B6YX5B26 136 0.55 SPYV EMDV EDVD EMDV EMDV
Dividend UCITS ETF
ESG SPDR® S&P® U.S. Dividend
IE00BYTH5R14 2 0.35 ZPD6 UGDV UEDV UEDV UEDV
Aristocrats ESG UCITS ETF
SPDR® S&P® Euro Dividend
IE00BYTH5T38 1 0.30 ZPD9 EEDV
Aristocrats ESG UCITS ETF
SPDR® S&P® Global Dividend
IE00BYTH5S21 2 0.45 ZPD3 GEDV GEDV
Aristocrats ESG UCITS ETF
Low SPDR® S&P® 500
Volatility IE00B802KR88 179 0.35 SPY1 USLV ELOW LOWV ELOW LOWV LOWV
Low Volatility UCITS ETF
SPDR® EURO STOXX®
IE00BFTWP510 93 0.30 ZPRL LOWV ELOW ELOW
Low Volatility UCITS ETF
SPDR® STOXX® Global
IE00BKDVQ787 7 0.30 GLOW GLOW*
Low Volatility UCITS ETF
Value SPDR® MSCI USA Value
IE00BSPLC520 191 0.20 ZPRU UVAL USVL UVAL
UCITS ETF
SPDR® MSCI USA Small Cap
IE00BSPLC413 271 0.30 ZPRV USSC
Value Weighted UCITS ETF
SPDR® MSCI Europe Value
IE00BSPLC306 30 0.20 ZPRW EVAL EVAL
UCITS ETF
SPDR® MSCI Europe Small Cap
IE00BSPLC298 138 0.30 ZPRX EUSV
Value Weighted UCITS ETF
SPDR® MSCI World Value
IE00BJXRT813 42 0.25 VALW WVAL WVAL*
UCITS ETF
Source: State Street Global Advisors, as of 30 June 2021. *Primary ticker (if not listed on Xetra).
Smart Beta Compass Q3 2021 25Standard Performance (%)
Fund/Index Name 1 Month 3 Months 6 Months Year-to- 1 Year 3 Years 5 Years Since
(%) (%) (%) Date (%) (%) (%) (%) Inception
(%)
Inception Date 14/10/2011
SPDR S&P US Dividend Aristocrats UCITS ETF -1.86 4.27 16.71 16.71 37.42 12.34 11.00 13.02
S&P High Yield Dividend Aristocrats Index 1
-1.87 4.26 16.73 16.73 37.36 12.22 10.92 12.96
Difference 0.01 0.01 -0.02 -0.02 0.06 0.12 0.08 0.06
Inception Date 28/02/2012
SPDR S&P Euro Dividend Aristocrats UCITS ETF -0.01 3.14 10.81 10.81 18.60 2.57 6.09 8.08
S&P Euro High Yield Dividend Aristocrats Index -0.01 2.90 10.50 10.50 18.13 2.19 5.70 7.71
Difference 0.00 0.24 0.31 0.31 0.47 0.38 0.39 0.37
Inception Date 15/05/2013
SPDR S&P Global Dividend Aristocrats UCITS ETF -2.22 4.09 14.07 14.07 39.23 5.28 6.71 5.69
S&P Global Dividend Aristocrats Quality Income Index2 -2.25 4.04 14.12 14.12 39.28 5.26 6.74 5.77
Difference 0.03 0.05 -0.05 -0.05 -0.05 0.02 -0.03 -0.08
Inception Date 15/05/2013
SPDR S&P Pan Asia Dividend Aristrocrats UCITS ETF -1.21 1.69 7.04 7.04 25.43 5.88 8.64 5.79
S&P Pan Asia Dividend Aristocrats Index -1.14 1.89 7.42 7.42 26.18 6.45 9.29 6.36
Difference -0.07 -0.20 -0.38 -0.38 -0.75 -0.57 -0.65 -0.57
Inception Date 28/02/2012
SPDR S&P UK Dividend Aristocrats UCITS ETF 1.88 6.33 9.18 9.18 11.78 0.75 2.15 5.02
S&P UK High Yield Dividend Aristocrats Index 2.07 6.59 9.54 9.54 12.30 1.26 2.66 5.53
Difference -0.19 -0.26 -0.36 -0.36 -0.52 -0.51 -0.51 -0.51
Inception Date 14/10/2011
SPDR S&P Emerging Markets Dividend Aristocrats UCITS ETF -1.93 0.87 3.72 3.72 32.28 4.12 6.86 0.05
S&P Emerging Markets High Yield Dividend Aristocrats Index3 -1.92 0.93 4.41 4.41 33.72 5.20 8.07 1.12
Difference -0.01 -0.06 -0.69 -0.69 -1.44 -1.08 -1.21 -1.07
Inception Date 03/10/2012
SPDR S&P 500 Low Volatility UCITS ETF -0.03 5.26 9.05 9.05 24.32 10.52 9.12 11.10
S&P 500 Low Volatility Index -0.03 5.27 9.05 9.05 24.36 10.57 9.14 11.12
Difference 0.00 -0.01 0.00 0.00 -0.04 -0.05 -0.02 -0.02
Inception Date 24/03/2014
SPDR EURO STOXX Low Volatility UCITS ETF 2.11 6.35 9.44 9.44 17.64 4.62 6.99 8.07
EUROSTOXX Low Risk Weighted 100 Index 2.09 6.19 9.29 9.29 17.57 4.33 6.77 7.83
Difference 0.02 0.16 0.15 0.15 0.07 0.29 0.22 0.24
Inception Date 18/02/2015
SPDR MSCI USA Value UCITS ETF -1.12 3.67 21.05 21.05 50.04 11.71 13.09 9.89
MSCI USA Value Exposure Select Index4 -1.12 3.66 21.02 21.02 49.93 11.52 12.96 9.76
Difference 0.00 0.01 0.03 0.03 0.11 0.19 0.13 0.13
Source: State Street Global Advisors, as of 30 June 2021. Performance is net of all fees. Performance quoted represents past performance, which is no guarantee of future
results. Investment return and principal value will fluctuate, so you may have a gain or loss when shares are sold. Current performance may be higher or lower than that quoted.
All results are historical and assume the reinvestment of dividends and capital gains. The performance data do not take account of the commissions and costs incurred on the
issue and redemption, or purchases and sale, of units. Visit ssga.com for most recent month-end performance. Index returns are unmanaged and do not reflect the deduction
of any fees or expenses. Performance returns for periods of less than one year are not annualised. Some of the products are not available to investors in certain jurisdictions.
Please contact your relationship manager in regards to availability.
1
Returns are for the unhedged share class. The fund is also available in a EUR-hedged share class (launched on 17 June 2019).
2
Index returns reflect the S&P Global Dividend Aristocrats Index prior to 31st January 2020, when the fund changed to tracking current benchmark.
3
Index returns reflect the S&P Emerging Markets Dividend Opportunities Index prior to 7th February 2020, when the fund changed to tracking current benchmark.
4
Index returns reflect the MSCI USA Value Weighted Index prior to 11th July 2018, when the fund changed to tracking current benchmark.
5
Index returns reflect the MSCI Europe Value Weighted Index prior to 11th July 2018, when the fund changed to tracking current benchmark.
Smart Beta Compass Q3 2021 26Standard Performance (%) (cont’d)
Fund/Index Name 1 Month 3 Months 6 Months Year-to- 1 Year 3 Years 5 Years Since
(%) (%) (%) Date (%) (%) (%) (%) Inception
(%)
Inception Date 18/02/2015
SPDR MSCI USA Small Cap Value Weighted UCITS ETF -1.26 5.64 30.77 30.77 83.76 13.01 14.29 10.06
MSCI USA Small Cap Value Weighted Index -1.26 5.67 30.98 30.98 84.35 13.29 14.57 10.32
Difference 0.00 -0.03 -0.21 -0.21 -0.59 -0.28 -0.28 -0.26
Inception Date 18/02/2015
SPDR MSCI Europe Value UCITS ETF 0.85 4.02 17.79 17.79 33.05 5.00 8.19 3.77
MSCI Europe Value Exposure Select Index5 0.80 3.87 17.75 17.75 33.09 4.91 8.10 3.57
Difference 0.05 0.15 0.04 0.04 -0.04 0.09 0.09 0.20
Inception Date 18/02/2015
SPDR MSCI Europe Small Cap Value Weighted UCITS ETF -2.09 4.30 20.34 20.34 52.08 6.87 9.58 6.11
MSCI Europe Small Cap Value Weighted Index -2.07 4.34 20.48 20.48 53.11 7.05 9.88 6.30
Difference -0.02 -0.04 -0.14 -0.14 -1.03 -0.18 -0.30 -0.19
Source: State Street Global Advisors, as of 30 June 2021. Performance is net of all fees. Performance quoted represents past performance, which is no guarantee of future
results. Investment return and principal value will fluctuate, so you may have a gain or loss when shares are sold. Current performance may be higher or lower than that quoted.
All results are historical and assume the reinvestment of dividends and capital gains. The performance data do not take account of the commissions and costs incurred on the
issue and redemption, or purchases and sale, of units. Visit ssga.com for most recent month-end performance. Index returns are unmanaged and do not reflect the deduction
of any fees or expenses. Performance returns for periods of less than one year are not annualised. Some of the products are not available to investors in certain jurisdictions.
Please contact your relationship manager in regards to availability.
1
Returns are for the unhedged share class. The fund is also available in a EUR-hedged share class (launched on 17 June 2019).
2
Index returns reflect the S&P Global Dividend Aristocrats Index prior to 31st January 2020, when the fund changed to tracking current benchmark.
3
Index returns reflect the S&P Emerging Markets Dividend Opportunities Index prior to 7th February 2020, when the fund changed to tracking current benchmark.
4
Index returns reflect the MSCI USA Value Weighted Index prior to 11th July 2018, when the fund changed to tracking current benchmark.
5
Index returns reflect the MSCI Europe Value Weighted Index prior to 11th July 2018, when the fund changed to tracking current benchmark.
Smart Beta Compass Q3 2021 27Contributors Ryan Reardon
Senior Smart Beta ETF Strategist
Methodologies
Style This document generally uses the term Style to refer to categorical stock characteristics which can be
measured (see Style Definitions).
Factor This document generally uses the term Factor to refer to specific categorical stock characteristics
which have been studied extensively in academia for having the potential to explain portfolio returns such as
value, quality, size, momentum, volatility and dividend yield.
Smart Beta This document generally uses the term Smart Beta to refer to indexing strategies which are
non-market capitalisation (Beta) weighted.
Institutional Style Positioning. As part of State Street, we have access to information gleaned from our
large global custody business. By aggregating $39 trillion of financial assets, we can observe behavioural
trends of this important investor constituent.1 This includes not only the direction of flows, but also the
relative positioning of portfolios. These metrics are generated from regression analysis based on aggregated
and anonymous flow data in order to better capture investor preference and to ensure the safeguarding of
client confidentiality.
Institutional Holdings Trend Measure investors’ actual positions over and above the neutral positions
embedded in their benchmarks. The figures are shown as percentiles and represent the investor holdings at
month-end versus the last 20+ years (data since March 1998). This approach provides perspective on the
size of holdings compared with their historical trends, whereas a single, dollar figure provides less context;
100% represents the largest holding whilst 0% is the lowest holding.
Active Flows Trend Indicates the value of net buying by large institutional investors (buys minus sells)
expressed in terms of basis points of market capitalisation. These are flows in addition to the purchases
or sales driven by shareholders allocating to the benchmark.
Style Definitions The table below explains the methodology behind each style dimension.
Beta Regression coefficient in Capital Asset Pricing Model (“CAPM”)
Inflation Exposure Correlation between stock return and implied Consumer Price Index (“CPI”)
Dividend Yield Dividend Yield
Idiosyncratic Volatility Standard deviation of residuals in Capital Asset Pricing Model (“CAPM”)
Size Market capitalisation
Price Momentum 9-month price return
Relative Efficiency (referenced as Relative Quality) Return-on-equity minus industry median return-on-equity
Relative Value (History) Book-to-market of stock vs. average historical book-to-market
Relative Value (Industry) Book-to-market of stock vs. industry median book-to-market
Value/Growth Book-to-market
Smart Beta Compass Q3 2021 28Methodologies (cont'd) Index Definitions The table below details the indexes used in this document. MSCI World Index MSCI World Net Total Return USD Index STOXX Global 1800 Index STOXX Global 1800 Index USD MSCI World High Div MSCI World High Dividend Yield Net Total Return Index S&P Global Div Aristo S&P Global Dividend Aristocrats Quality Income Index (USD) NTR MSCI World Min Vol MSCI World Minimum Volatility Net Total Return USD Index STOXX Global Low Vol STOXX Global Low Risk Weighted Diversified 200 Net Return USD MSCI World Momentum MSCI World Momentum Net Total Return USD Index MSCI World Quality MSCI World Quality Net Total Return USD Index MSCI World Small Cap MSCI World Small Cap Net Total Return USD Index MSCI World Value MSCI World Value Net Total Return USD Index MSCI World Value Select MSCI World Value Exposure Select Net Return USD Index S&P 500 Index S&P 500 Net Total Return Index MSCI USA Index MSCI USA Net Total Return USD Index MSCI USA High Div MSCI USA High Dividend Yield Net Total Return USD Index S&P US Div Aristo S&P High Yield Dividend Aristocrats Net Total Return Index S&P US Min Vol S&P 500 Minimum Volatility Net Total Return Index S&P US Low Vol S&P 500 Low Vol Net Total Return Index MSCI USA Momentum MSCI USA Momentum USD Net Total Return Total Return Index MSCI USA Quality MSCI USA Quality Net Total Return USD Index US Small Cap Russell 2000 Net 30% Return MSCI USA Value MSCI USA Value Net Total Return USD Index MSCI USA Value Select MSCI USA Value Exposure Select Net Return USD Index EURO STOXX Index EURO STOXX Net Return EUR MSCI Europe Index MSCI Europe Net Total Return EUR Index MSCI EMU High Div MSCI EMU High Dividend Yield Net Total Return Local Index S&P Euro Div Aristo S&P Euro HIGH YIELD Dividend Aristocrats Net Total Return MSCI EMU Min Vol MSCI EMU Minimum Volatility Optimised In EUR Net Total Return Local Index EURO STOXX Low Vol EURO STOXX Low Risk Weighted 100 Index MSCI Europe Momentum MSCI EUROPE MOMENTUM Net EUR Index MSCI EMU Quality MSCI EMU Quality Net Return EUR Index MSCI Europe Small Cap MSCI Europe Small Cap Net Return EUR Index MSCI Europe Value MSCI Europe Value Net Total Return EUR Index MSCI Europe Value Select MSCI Europe Value Exposure Select Net Return EUR Index Endnotes 1 Source: State Street, as of 31 December 2020. Smart Beta Compass Q3 2021 29
About State For four decades, State Street Global Advisors has served the world’s
Street Global governments, institutions and financial advisors. With a rigorous, risk-aware
approach built on research, analysis and market-tested experience, we build
Advisors
from a breadth of active and index strategies to create cost-effective solutions.
As stewards, we help portfolio companies see that what is fair for people and
sustainable for the planet can deliver long-term performance. And, as pioneers
in index, ETF, and ESG investing, we are always inventing new ways to invest.
As a result, we have become the world’s third-largest asset manager with US
$3.59 trillion* under our care.
* This figure is presented as of March 31, 2021 and includes approximately $60.33 billion of
assets with respect to SPDR products for which State Street Global Advisors Funds Distributors,
LLC (SSGA FD) acts solely as the marketing agent. SSGA FD and State Street Global Advisors
are affiliated.
Smart Beta Compass Q3 2021 30ssga.com/etfs France even though its activity does
not comply with rules identical to
persons to whom it is unlawful to make
such offer or solicitation.
Information Documents, the Marketing
Memoranda, the fund rules or
those governing the approval of this Italy Entity: State Street Global instruments of incorporation as well
Marketing communication.
type of product in France.The offering Advisors Ireland Limited Milan Branch as the annual and semi-annual reports
General access.
of these compartments has been (Sede Secondaria di Milano) (“State of State Street Global Advisors SPDR
notified to the Autorité des Marchés Street Global Advisors Milan Branch”) ETFs Europe I and II plc from Cecabank,
For professional clients use only. Financiers (AMF) in accordance with is a branch of State Street Global S.A. Alcalá 27, 28014 Madrid (Spain)
For qualified investors according article L214-2-2 of the French Monetary Advisors Ireland Limited, registered in who is the Spanish Representative,
to Article 10(3) and (3ter) of the and Financial Code. Ireland with company number 145221, Paying Agent and distributor in Spain
Swiss Collective Investment For Investors in Germany: The authorised and regulated by the Central or at ssga.com. The authorised
Schemes Act (“CISA”) and its offering of SPDR ETFs by the Bank of Ireland, and whose registered Spanish distributor of State Street
implementing ordinance, at the Companies has been notified to office is at 78 Sir John Rogerson’s Quay, Global Advisors SPDR ETFs is available
exclusion of qualified investors the Bundesanstalt für Dublin 2. State Street Global Advisors on the website of the Securities
with an opting-out pursuant to Art. Finanzdienstleistungsaufsicht (BaFin) Milan Branch is registered in Italy Market Commission (Comisión
5(1) of the Swiss Federal Law on in accordance with section 312 of the with company number 10495250960 Nacional del Mercado de Valores).
Financial Services (“FinSA”) and German Investment Act. Prospective - R.E.A. 2535585 and VAT number For Investors in Switzerland: This
without any portfolio management investors may obtain the current sales 10495250960, and its office is located document is directed at qualified
or advisory relationship with a Prospectuses, the articles of at Via Ferrante Aporti, 10 - 20125 investors only, as defined Article 10(3)
financial intermediary pursuant to incorporation, the KIIDs as well as the Milano, Italy. T: (+39) 02 32066 100. and (3ter) of the Swiss Collective
Article 10(3ter) CISA (“Excluded latest annual and semiannual report F: (+39) 02 32066 155. Investment Schemes Act (“CISA”) and
Qualified Investors”) only. free of charge from State Street For Investors in Luxembourg: The its implementing ordinance, at the
Global Advisors GmbH, Brienner Companies have been notified to the exclusion of qualified investors with an
For Investors in Austria: The offering Strasse 59, D-80333 Munich. Commission de Surveillance du opting-out pursuant to Art. 5(1) of the
of SPDR ETFs by the Company has T: +49 (0)89-55878-400. Secteur Financier in Luxembourg in Swiss Federal Law on Financial
been notified to the Financial Markets Ireland Entity: State Street Global order to market their shares for sale to Services (“FinSA”) and without any
Authority (FMA) in accordance with Advisors Ireland Limited is regulated the public in Luxembourg and the portfolio management or advisory
section 139 of the Austrian Investment by the Central Bank of Ireland. Companies are notified Undertakings in relationship with a financial
Funds Act. Prospective investors may Registered office address 78 Sir John Collective Investment for Transferable intermediary pursuant to Article
obtain the current sales Prospectus, Rogerson’s Quay, Dublin 2. Registered Securities (UCITS). 10(3ter) CISA (“Excluded Qualified
the articles of incorporation, the KIID number 145221. T: +353 (0)1 776 3000. For Investors in the Netherlands: Investors”). Certain of the funds may
as well as the latest annual and F: +353 (0)1 776 3300. This communication is directed at not be registered for public sale with
semi-annual reportfree of charge from Israel: No action has been taken or will qualified investors within the meaning the Swiss Financial Market Supervisory
State Street Global Advisors GmbH, be taken in Israel that would permit a of Section 2:72 of the Dutch Financial Authority (FINMA) which acts as
Brienner Strasse 59, D-80333 Munich. public offering of the Securities or Markets Supervision Act (Wet op het supervisory authority in investment
T: +49 (0)89-55878-400. distribution of this sales brochure to financieel toezicht) as amended. The fund matters. Accordingly, the shares
F: +49 (0)89-55878-440. the public in Israel. This sales brochure products and services to which this of those funds may only be offered to
For Investors in Finland: The offering has not been approved by the Israel communication relates are only the aforementioned qualified investors
of funds by the Companies has been Securities Authority (the ‘ISA’). available to such persons and persons and not be offered to any other investor
notified to the Financial Supervision Accordingly, the Securities shall only of any other description should not rely in or from Switzerland. Before investing
Authority in accordance with Section be sold in Israel to an investor of the on this communication. Distribution of please read the prospectus and the
127 of the Act on Common Funds type listed in the First Schedule to the this document does not trigger a KIID. In relation to those funds which
(29.1.1999/48) and by virtue of Israeli Securities Law, 1978, which has licence requirement for the Companies are registered with FINMA or have
confirmation from the Financial confirmed in writing that it falls within or SSGA in the Netherlands and appointed a Swiss Representative and
Supervision Authority the Companies one of the categories listed therein consequently no prudential and Paying Agent, prospective investors
may publicly distribute its Shares in (accompanied by external confirmation conduct of business supervision will may obtain the current sales
Finland. Certain information and where this is required under ISA be exercised over the Companies or prospectus, the articles of
documents that the Companies must guidelines), that it is aware of the SSGA by the Dutch Central Bank incorporation, the KIIDs as well as the
publish in Ireland pursuant to applicable implications of being considered (De Nederlandsche Bank N.V.) and latest annual and semi-annual reports
Irish law are translated into Finnish and such an investor and consents thereto, the Dutch Authority for the Financial free of charge from the Swiss
are available for Finnish investors by and further that the Securities are being Markets (Stichting Autoriteit Financiële Representative and Paying Agent, State
contacting State Street Custodial purchased for its own account and not Markten). The Companies have Street Bank International GmbH,
Services (Ireland) Limited, 78 Sir John for the purpose of re-sale or distribution. completed their notification to the Munich, Zurich Branch,
Rogerson’s Quay, Dublin 2, Ireland. This sales brochure may not be Authority Financial Markets in the Beethovenstrasse 19, 8027 Zurich, or
For Investors in France: This reproduced or used for any other Netherlands in order to market their at spdrs.com, as well as from the main
document does not constitute an offer purpose, nor be furnished to any shares for sale to the public in the distributor in Switzerland, State Street
or request to purchase shares in the other person other than those to Netherlands and the Companies are, Global Advisors AG (“SSGA AG”),
Company. Any subscription for shares whom copies have been sent. accordingly, investment institutions Beethovenstrasse 19, 8027 Zurich. For
shall be made in accordance with the Nothing in this sales brochure should (beleggingsinstellingen) according information and documentation
terms and conditions specified in the be considered investment advice or to Section 2:72 Dutch Financial regarding all other funds, please visit
complete Prospectus, the KIID, the investment marketing as defined in Markets Supervision Act of spdrs.com or contact SSGA AG.
addenda as well as the Company the Regulation of Investment Advice, Investment Institutions. For Investors in the UK: The Funds
Supplements. These documents are Investment Marketing and Portfolio For Investors in Norway: The offering have been registered for distribution in
available from the Company centralizing Management Law, 1995 (“the of SPDR ETFs by the Companies has the UK pursuant to the UK's temporary
correspondent: State Street Banque Investment Advice Law”). Investors been notified to the Financial permissions regime under regulation
S.A., Coeur Défense — Tour A — La are encouraged to seek competent Supervisory Authority of Norway 62 of the Collective Investment
Défense 4 33e étage 100, Esplanade du investment advice from a locally (Finanstilsynet) in accordance with Schemes (Amendment etc.) (EU Exit)
Général de Gaulle 92 932 Paris La licenced investment advisor prior to applicable Norwegian Securities Funds Regulations 2019. The Funds are
Défense cedex France or on the French making any investment. State Street legislation. By virtue of a confirmation directed at 'professional clients' in
part of the site ssga.com/etfs. The is not licenced under the Investment letter from the Financial Supervisory the UK (as defined in rules made under
Company is an undertaking for Advice Law, nor does it carry the Authority dated 28 March 2013 (16 the Financial Services and Markets
collective investment in transferable insurance as required of a October 2013 for umbrella II) the Act 2000) who are deemed both
securities (UCITS) governed by Irish licencee thereunder. Companies may market and sell their knowledgeable and experienced in
law and accredited by the Central This sales brochure does not constitute shares in Norway. matters relating to investments. The
Bank of Ireland as a UCITS in an offer to sell or solicitation of an offer to For Investors in Spain: State Street products and services to which this
accordance with European Regulations. buy any securities other than the Global Advisors SPDR ETFs Europe I communication relates are only available
European Directive no. 2014/91/EU Securities offered hereby, nor does it and II plc have been authorised for to such persons and persons of any
dated 23 July 2014 on UCITS, as constitute an offer to sell to or solicitation public distribution in Spain and are other description should not rely on this
amended, established common rules of an offer to buy from any person or registered with the Spanish Securities communication. Many of the protections
pursuant to the cross-border marketing persons in any state or other jurisdiction Market Commission (Comisión provided by the UK regulatory system do
of UCITS with which they duly comply. in which such offer or solicitation would Nacional del Mercado de Valores) under not apply to the operation of the Funds,
This common base does not exclude be unlawful, or in which the person no.1244 and no.1242. Before investing, and compensation will not be available
differentiated implementation. This is making such offer or solicitation is not investors may obtain a copy of the under the UK Financial Services
why a European UCITS can be sold in qualified to do so, or to a person or Prospectus and Key Investor Compensation Scheme.
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