A new approach to diversification

Investment technology managing risk Investment technology managing risk

The Syntax Approach

Syntax takes the world’s most widely used benchmarks and re-weights them using our patented Stratified Weight methodology to diversify business risks. Traditional cap-weighting index strategies do little to diversify the concentration of related business risks—the shared risks of companies with similar business models. Instead, cap weighting causes an investor’s ownership to accumulate in the largest, most momentum-driven companies and industries. Investors need to properly manage related business risk to achieve the most consistent equity risk premium. Syntax’s family of Stratified Indices offer balanced exposures across business types. The result is better diversification.

Indices Diversify Business Risk Indices Diversify Business Risk
strategy performance

Fixing Bias in the Market Index

Syntax Stratified Weight Indices aim to reduce the bias in the most widely followed indices. The simplicity of cap-weighting has enabled it to become the default methodology for passive investments globally. However, with the growing popularity of alternative weight indices, the investment community has begun to question whether cap weight is the optimal way to gain broad-based market exposure. While conventional wisdom says a cap-weighted index captures a diversified equity risk premium simply by holding a sufficiently large number of constituents, this is often not the case.

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strategy rbr

Build Business Risk Groups

For too long, investors have been exposed to a type of risk that has not been adequately identified, let alone addressed, in the marketplace. We call this risk Related Business Risk (RBR): the risk that two or more businesses will react similarly to market events. By leveraging nearly two decades’ worth of economic research, Syntax has developed a solution designed to identify and manage this type of risk.

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Diversified Weights

Syntax diversifies Related Business Risk through a novel index weighting methodology called Stratified Weight. The objective of stratified weight is to maintain equal exposure across RBRs, capturing all the economic opportunities in an index. If left uncontrolled, an index can become dangerously concentrated in a particular RBR that negatively impacts its performance.

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stratified weight index

Stratified Weight Index

The Stratified Index directly addresses the related business biases in cap weighting. The objective of Syntax Stratified Indices is to capture the broad equity risk premium for the universe. This goal is difficult to achieve by concentrating in the largest companies or the hottest sectors, as cap weighting does, but can be realized through business risk diversification. Stratified Indices are designed to be an investor’s core equity exposure.

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The Stratified Performance Difference

The key to Syntax’s Stratified-Weight performance comes from controlling for Related Business Risk events. See how controlling for such events has demonstrated outperformance across sectors, geographies and market environments.

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strategy FIS DNA

FIS: Sequencing Business DNA

To identify Related Business Risks, Syntax uses its patented multi-attribute Functional Information System (FIS).

Just as every person has 23 unique chromosomes that carry our genetic information and make each of us who we are, each company in the economy has its own set of “chromosomes” – products, services, employees, customers – that make it unique.

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Past performance is no guarantee of future results. All performance presented prior to the index inception date is back-tested performance, based on the methodology in effect on the launch date. Back-tested performance is not actual performance, but is hypothetical. The inception date of the Syntax Stratified Core, Syntax Stratified Financials, Syntax Stratified Energy, Syntax Stratified Industrials, Syntax Stratified IT, Syntax Stratified Information, Syntax Stratified Consumer, Syntax Stratified Food, Syntax Stratified Healthcare, and Syntax Stratified LargeCap Indices (“the Indices”) is 12/27/2016. 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. No theoretical or back-tested approach can account for all market factors and the impact of decisions that might have been made during the actual operation of an index. Actual returns may differ from, and be lower than, back-tested returns, which are not necessarily predictive of future returns. The base index value is set as of 100 as of the initial back-test date of 12/20/1991. Charts and graphs are provided for illustrative purposes only.

The Indices are the property of Locus Analytics, LLC, which has contracted with S&P Dow Jones Indices 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 Locus Analytics, 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”). Syntax®, Stratified®, Stratified Indices®, Stratified-Weight™, and Locus® are trademarks or registered trademarks of Locus Analytics, LLC.

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 these indices lend securities, and no revenues from securities lending were added to the performance shown. Performance shown is unaudited and subject to revision. This site may include materials and documents containing forward-looking statements which are based on our expectations and projections as of the date made. Past returns are not necessarily predictive of future returns.

The S&P 500® Index is an unmanaged index considered representative of the US large-cap stock market. The S&P 500® Equal Weight Index is an equal-weighted version of the S&P 500® Index. The S&P 400® is an unmanaged index considered representative of the US mid-cap stock market. The S&P 400® Equal Weight Index is an equal-weighted version of the S&P 400® Index. The S&P 900® Index is an unmanaged composite of the S&P 500® and S&P 400® Indices. Benchmark data for the S&P 900, S&P 500, and S&P 500 Equal Weight Indices are provided by S&P Dow Jones Indices. The capitalization-weighted Syntax Stratified sector benchmarks are calculated by Syntax via FactSet®.