Products May 27, 2008

S&P Launches Commodities, Natural Resources Indices

Commodities markets have been thriving of lateâ€″and investors have a new way to benchmark those investments.
Reported by

Standard & Poor’s launched two new indices aimed at providing investors with benchmark and investable exposure to the commodities and natural resources sectors.

According to a press release, the S&P Global Natural Resources Index is designed to provide diversified, highly liquid, and investable exposure across the primary commodity sectors of energy, agribusiness and metals and mining. Each of these sectors has two clusters: energy (oil, coal and gas), agribusiness (agriculture and livestock) and metals and mining (precious and industrial). The index offers focused coverage of the 60 largest companies across these six clusters, and is designed primarily for structured product providers and ETFs.

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The S&P PMI Commodities and Resources Index is designed to provide a broader coverage of larger capitalized stocks from commodities and resources (energy, agribusiness and metals and mining), with approximately 160 stocks suitable for benchmarking for performance measurement, data for research, or passive management, including funds and ETFs.

Natural Resources

According to the release, the S&P Global Natural Resources Index sits within S&P’s family of Global Thematic Indices. It uses a modified cap weighting at the constituent level subject to stock level constraints (10% cap per stock). To ensure investability, a minimum market capitalization of US$1 billion and a minimum six month average daily value traded of $10 million is required. The three sectors, six clusters, and 10 stocks per cluster are not capped, so the index weighting is bottom-up driven.

The S&P PMI Commodity and Resources Index measures the performance of constituents that fall into three different natural resources buckets: energy, materials, and agriculture. Each bucket is capped at 33.33% to ensure that one bucket will not dominate the index. The index is a subset of the S&P/Citigroup BMI Global Equity Indices.

One-year returns, at April 30, were 35.27% for the S&P Global Natural Resources Index and 51.92% for the S&P PMI Commodity and Resources Index, according to S&P.

More information is available at http://www.standardandpoors.com/indices.


The Markets May 27, 2008

Post-Retirement Returns Critical to Retirement Income

A good portion of participants’ retirement income will come from investment returns generated by 401(k) accounts after they stop work, research from Russell Investments says.
Reported by

Authors Matt Smith, Managing Director of Retirement Services and Bob Collie, Director of Investment Strategy analyzed the make-up of retirement income of participants in a defined contribution (DC) context.

The researchers dubbed their work the 10/30/60 rule, because each dollar of retirement income will be made up of the following:

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  • 10% contributions made to the DC plan while working;
  • 30% investment returns generated before retirement;
  • 60% of investment returns generated after retirement.

Russell altered several input assumptions—such as the retirement age, the age when saving begins, and age of death—and found that only lowering the expected post-retirement return would significantly change the 10/30/60 rule.

Smith points out that the research should not undervalue the contribution level; without contributions, there can be no return. “With roughly 90% of distributions being generated by investment earnings, sound investment programs are critical if DC plans are to be effective in meeting goals for financial security in retirement,’ Smith said in the release. “This research underpins the importance of a long-term, diversified investment approach as the best way to maximize the chance of successfully meeting retirement income goals.”

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