Sell-offs, Reversals, and Business Risk Update

As the market leadership shifts from mega-cap technology stocks to a more value oriented focus, we wanted to highlight the attractiveness of our Stratified Weight Indices. So far this quarter, our flagship indices have significantly outperformed their benchmarks in all categories (US Large Caps, Mid Caps, Small Caps and International).
Total return, 3.31.2020 – 6.8.2020 and 12.31.2019 – 6.8.2020. Performance does not reflect fees or implementation costs as an investor cannot directly invest in an index. Source: S&P Dow Jones Indices, Syntax.

The charts below explain this outperformance and are an update to the research note “Sell-offs, Reversals & Business Risk” that we published on March 26th. Our key takeaway is that the V-shaped recovery that we experienced due to the 2008 sell-off and subsequent recovery provided us with an effective roadmap for market reaction to the Coronavirus pandemic. Similar to the recovery in 2009, the hardest hit sectors during the sell-off have been the best performers during the recovery. Cap weighted indices fail to capture this reversal since they do not rebalance their weights, leading to oversized positions in sectors with the lowest upside potential. Furthermore, the current sector biases in most core cap weighted benchmarks are still at extreme levels and have great potential to cause a further drag on performance relative to alternative weight products such as Syntax Stratified Indices.

Sell-off & Subsequent Reversal: Stratified vs Cap Weight (S&P 500). Stratified weight indices started to significantly outperform their cap weighted counterparts during the recent rally (from May 14th).
Total return, Syntax Stratified LargeCap Index and S&P 500 Index, 3.31.2020 – 6.8.2020. Performance does not reflect fees or implementation costs as an investor cannot directly invest in an index. Source: S&P Dow Jones Indices, Syntax.

The worst performing sectors in the sell-off were the best performing sectors in the recovery
Total return of S&P 500 Index sector subsets, Sell-off period (2.21.2020 - 3.23.2020) vs. Recovery (3.24.2020 - 6.8.2020). Performance does not reflect fees or implementation costs as an investor cannot directly invest in an index. Source: S&P Dow Jones Indices, Syntax, FactSet Research Systems.


Stratified Weight Indices have greater exposure to sectors which benefit from continued reversal

% Reversal Remaining calculated as percentage of the total return drawdown from 2.19.2020 to 3.23.2020 that has been recovered in the recovery period from 3.24.2020 - 6.7.2020. Reversal upside is % from 2.21.20 level. Potential Upside is the sector-weighted average % Reversal Upside. S&P 500 Sector weights as of 6.8.2020, Stratified Weights are target weights at rebalance. Performance does not reflect fees or implementation costs as an investor cannot directly invest in an index. Source: S&P Dow Jones Indices, Syntax, FactSet Research Systems.



2008 Financial Crisis saw Stratified Weight Indices outperform cap weight for over a year following the trough.
Cumulative total return, 9.12.2008-3.9.2009 and 3.9.2009-3.9.2011. Performance does not reflect fees or implementation costs as an investor cannot directly invest in an index. Please see important disclaimers regarding backtested data prior to inception. Source: S&P Dow Jones Indices, Syntax.

Disclaimers

Past performance is no guarantee of future results. All performance presented prior to the index inception date is back-tested performance. Back-tested performance is not actual performance, but is hypothetical. The inception date of the Syntax Stratified LargeCap and Syntax Stratified MidCap Indices was 12.27.2016. The inception date of the Syntax Stratified SmallCap Index was 1.3.2020. The inception date of the Syntax Europe & Asia Developed Markets Indices was 1.1.2016. The back-test calculations are based on the same methodology that was in effect when the index was officially launched. However, back-tested data may reflect the application of the index methodology with the benefit of hindsight, and the historic calculations of an index may change from month to month based on revisions to the underlying economic data used in the calculation of the index. Charts and graphs are provided for illustrative purposes only.
 
The Syntax Stratified LargeCap Index, Syntax Stratified MidCap Index, Syntax Stratified SmallCap Index, and Syntax Europe & Asia Developed Markets (“SEADM”) Index are the property of Syntax, LLC, which has contracted with S&P Opco, LLC (a subsidiary of S&P Dow Jones Indices LLC) to calculate and maintain the Indices. The Indices are not sponsored by S&P Dow Jones Indices or its affiliates or its third party licensors (collectively, “S&P Dow Jones Indices”). S&P Dow Jones Indices will not be liable for any errors or omissions in calculating the Index. “Calculated by S&P Dow Jones Indices” and the related stylized mark(s) are service marks of S&P Dow Jones Indices and have been licensed for use by Syntax, LLC. S&P® is a registered trademark of Standard & Poor's Financial Services LLC (“SPFS"), and Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”). The MSCI EAFE Index was used by Syntax, LLC as the reference universe for selection of the companies included in the SEADM Index. MSCI does not in any way sponsor, support, promote or endorse the Index. MSCI was not and is not involved in any way in the creation, calculation, maintenance or review of the Index. The MSCI EAFE Index was provided on an “as is” basis. MSCI, each of its affiliates and each other person involved in or related to compiling, computing or creating the MSCI EAFE Index (collectively, the “MSCI Parties”) expressly disclaim all warranties (including, without limitation, any warranties of originality, accuracy, completeness, timeliness, non‐infringement, merchantability and fitness for a particular purpose). Without limiting any of the foregoing, in no event shall any of the MSCI Parties have any liability for any direct, indirect, special, incidental, punitive, consequential (including, without limitation, lost profits) or any other damages in connection with the MSCI EAFE Index or the SEADM Index. Prior to March 19, 2018, the SEADM Index was calculate by NYSE. Sector subsets of the Syntax Stratified LargeCap, Syntax Stratified MidCap, and SEADM Indices are calculated using model performance generated in FactSet, and as such may differ from index calculations performed by S&P Dow Jones Indices. Syntax®, Stratified®, Stratified Indices®, Stratified-Weight™, Stratified Benchmark Indices™, Stratified Sector Indices™, Stratified Thematic Indices™, and Locus® are trademarks or registered trademarks of Syntax, LLC and its affiliate Locus LP. FactSet® is a registered trademark of FactSet Research Systems, Inc.

Index performance does not represent actual fund or portfolio performance and such performance does not reflect the actual investment experience of any investor. An investor cannot invest directly in an index. In addition, the results actual investors might have achieved would have differed from those shown because of differences in the timing, amounts of their investments, and fees and expenses associated with an investment in a portfolio invested in accordance with an index. None of the Syntax Indices or the benchmark indices portrayed herein charge management fees or incur brokerage expenses, and no such fees or expenses were deducted from the performance shown; provided, however that the returns of any investment portfolio invested in accordance with such indices would be net of such fees and expenses. Additionally, none of such indices lend securities, and no revenues from securities lending were added to the performance shown. 

This document is for informational purposes only and is not intended to be, nor should it be construed or used as an offer to sell, or a solicitation of any offer to buy, any security. Additionally, the information herein is not intended to provide, and should not be relied upon for, legal advice or investment recommendations. You should make an independent investigation of the matters described herein, including consulting your own advisors on the matters discussed herein. In addition, certain information contained in this factsheet has been obtained from published and non-published sources prepared by other parties, which in certain cases have not been updated through the date hereof. While such information is believed to be reliable for the purpose used in this factsheet, such information has not been independently verified by Syntax and Syntax does not assume any responsibility for the accuracy or completeness of such information. Syntax LLC, its affiliates and their independent providers are not liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. Investments are not FDIC insured, may lose value and have no bank guarantee.