S&P Outlines Index Changes

Standard & Poor’s will revamp its style indexes later this year by, among other things, dropping one of seven factors traditionally used to determine stock level style scores.

An S&P news release said the changes will also refresh the factors used to calculate growth and value. The company said its next generation of growth/value style and pure style indexes will be based on a review of recent academic literature, and a time-series and cross-section analysis.

“In order to effectively capture changes in financial theory, accounting standards and investment sentiment, a relevant and efficient style benchmark should refresh its factors every five to 10 years,” said Aniket Ullal, senior director at S&P Index Services. “The introduction of new factors such as momentum to calculate the S&P Style and S&P Pure Style Indices will reflect the new way that investors think about style.”

According to S&P, the old factors used to judge growth issues were sales growth, earnings growth, and internal growth rate, while the new growth factors will be sales growth, earnings change to price, and momentum. The old factors for value stocks were sales to price, book to price, cash flow to price, and dividend yield, while the new factors will be sales to price, book to price, and earnings to price.

The remainder of Standard & Poor’s style framework, such as the creation of style baskets and construction of indexes from those baskets, will remain unchanged.

More information about the changes is available here.

Q3 Securities Litigation Driven by New Charges

The third quarter saw a robust 169 new securities lawsuits filed, but the credit crisis is no longer leading the litigation charge, according to Advisen’s quarterly update on securities litigation.

The 169 suits filed in the third quarter represent an 11% increase over the second quarter’s total (see “Securities Cases on Downslope”), but still significantly trail the 249 suits filed in the first quarter, which was dominated by suits arising from the credit crisis, as well as suits against firms tied to the Bernard Madoff Ponzi scheme. Both securities class action and securities fraud cases grew solidly in Q3, representing approximately three-quarters of all securities lawsuit filings, the report said.

Securities class action suits (SCAS), no longer leading the pack, showed a bit of a comeback with 55 cases filed in Q3 2009, up from 38 cases the quarter before, but down from 59 cases a year earlier. Securities fraud filings led the way for the third straight quarter with 70 cases, up from 50 in the second quarter. Although they fell short of the 92 securities fraud suits in the first quarter, securities fraud cases represented 41% of all securities cases, an all-time high.

In third place was breach of fiduciary duty suits, at 27. The top three types of suits made up 90% of all suits for the third quarter. Other types of cases filed in Q3 2009 were derivative shareholder actions and other derivative cases (nine) and Ponzi scheme and other cases (eight).

Madoff-related and credit crisis-related cases dropped off substantially. Madoff-related new filings fell to six cases in Q3 2009, down from 17 cases in Q2 and 54 in the first quarter. Credit crisis-related cases came in at nine cases in Q3 2009, down from 24 cases in Q2 and 46 in Q1.

The report is available here.


 




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