New demand coming mostly from the indexed annuities market is fuelling the rise of next generation custom indices.
S&P Dow Jones Indices (S&PDJI) has been a pioneer of QIS/systematic index strategies often licensed by bank and insurance carriers for use with financial and insurance products since the launch of the S&P Daily Risk Control index series in 2009.
We view S&PDJI multi-asset indices as outcome-oriented systematic index solutions - Phillip Brzenk
Over the past two years, S&PDJI has developed 20+ systematic, rules-based indices designed for these segments globally, according to Phillip Brzenk, global head of multi-asset indices, S&P Dow Jones Indices.
“We regularly launch indices designed for the bank segment based on input from the marketplace,” he said, adding that custom indices refer to S&P branded proprietary indices, not the S&P custom index business, which is a separate line of indices.
What is the USP of custom indices?
Phillip Brzenk: Custom indices enable market participants to seek targeted exposure to a specific part of the market or theme. For QIS index strategies, these typically will include some form of risk management, whether its diversification via multiple asset classes, incorporation of a volatility-control framework to manage volatility, or options-overlays or a combination of two or all three of these.
We view S&PDJI multi-asset indices as outcome-oriented systematic index solutions. These strategies combine various asset classes, allocation mechanics such as risk control, and/ or derivatives such as options to achieve specific rules-based objectives. We take the lens of understanding what the end objective is and building an index for that purpose.
For a point of clarification S&PDJI multi-asset index product index suite includes classic asset allocation strategies; volatility-controlled index strategies, regardless of how many asset classes are represented in a particular strategy; options-based overlay strategies; and liquid alternatives.
Do strategy indices provide an opportunity to embed protection in the underlying as opposed to the product payoff?
Phillip Brzenk: Several things can be applicable here. First, the inclusion of a volatility-control overlay helps manage volatility of an index and bring more certainty around what the expected volatility of an index could be, in a tighter range than an index without a volatility-control framework.
Second, there are indices that incorporate options overlays, which, when used to underlie a financial product, may enable different payoff structures, such as covered call or buffered strategies.
Third, there are certain indices that embed floors on index performance such as the S&P defined volatility index series.
Can you provide any other examples of recent QIS/ custom indices you have developed/deployed in the market?
Phillip Brzenk: S&P 500 Engle Index Suite: we worked with Professor Robert F. Engle and UBS to launch the S&P 500 Engle Indices, which implements a predictive volatility control mechanism. These indices leverage and build on the Professor’s Nobel Prize-winning research, and the index series has actively been used across the globe in bank and insurance products.
S&P 500 FC Index: we worked with Bank of America to launch a volatility-controlled index initially for use by licensed carriers in the US insurance market. More recently, the index series has expanded to include indices for the Apac market (denominated in local currency), as well as underlying active issuance in the bank product space.
S&P 500 Market Agility 10 TCA Index: this index was designed to provide adaptive, multi-asset diversification in a single index. Its potential benefits versus a traditional equity index include diversification, adaptability, and stability. The index methodology uses S&P 500 and treasuries components designed to take a hypothetical long/short position on both asset classes. This index is currently being used in bank and insurance products.
The S&P Edge Volatility Index Series is a next-generation suite of managed volatility benchmarks, designed to offer equity linked upside potential while targeting a pre-defined level of annualized volatility. The index series uses SPX options data to estimate short-term implied volatility, which is one component of informing allocation to the targeted asset class. The index series is currently being used in bank and insurance products.
What changes would you highlight re market environment /demand for strategy indices over the last two years? Have investors changed their preferences?
Phillip Brzenk: We have seen an increasing appetite for sophisticated indices for bank and insurance products.
Most notably, over the last 2-3 years, we have rolled out what we’re calling next generation volatility management indices, primarily signified by the inclusion of intraday data. These indices leverage intraday data, with many being able to rebalance during the trading day as well, in order to be more responsive to changing market conditions.
More recently, we have seen increasing demand for indices that include alternatives like risk premia strategies or gold to provide diversification beyond equities.
Which strategies do you think will do well in the current environment?
Phillip Brzenk: In the context of looking at YTD 2025 performance, indices with diversification across asset classes, especially with exposure to assets such as gold, have generally done well.
Also, indices that have been able to identify changing market conditions and adjust exposures quickly via mechanisms such as volatility control have performed well.
Outlook for prop / strategy / QIS indices - Scope for prop/ custom indices growth?
Phillip Brzenk: With newer technology enabling index providers to digest more data than before, we believe growth will continue in this space as firms continue to innovate and leverage intraday data, alternative datasets, and/or new allocation methodologies. In addition, growth may be fueled by adoption of the more recent innovative strategies such as S&P DJI’s next generation volatility management index suite across the globe.
Do you have plans to grow S&PDJI’s footprint in the US annuities market?
Phillip Brzenk: S&PDJI is the leading index provider in the U.S. annuities market, both by market share and number of indices. Front and center of that is the S&P 500, which is in almost all annuity products in the U.S. In addition, 40 plus S&PDJI indices, many of which are volatility-controlled, are in indexed insurance products.
Complexity v risk – reputational considerations
Phillip Brzenk: Especially with the innovation occurring over the last few years (as answered in prior questions), complexity has certainly increased vs prior generation indices. There is a balance between complexity and managing expectations in terms of what an index does and does not do, and how it performed historically - hypothetically or based on live data - in various market cycles.
To bring confidence to the market, S&PDJI is a leading index provider in transparency and education. Our methodologies, which go through how a particular index is constructed and calculated, are freely available online. For the QIS strategies in particular, we put significant effort into educating the market on our indices via content and collateral, such as brochures, motion graphics videos, monthly performance dashboards, and regularly presenting at conferences and on webinars.
How would you describe the adoption of custom & strategy indices via structured products by region?
Phillip Brzenk: From an S&PDJI perspective, we are seeing the strongest demand for systematic indices in the US, particularly to be licensed for use in structured products and annuities. In Apac, demand has grown rapidly over the past 18 months, and we expect that to continue in the near term.
In Europe, while demand for S&PDJI-branded quantitative index strategies has been more limited, we see usage of volatility-controlled indices in the market.
Why is the Apac region somewhat behind the other two regions when it comes to adoption?
Phillip Brzenk: Over the past 18 months, we have seen rapid adoption of quantitative index strategies in Apac, particularly to be licensed for use with structured products and indexbased insurance solutions.
Key drivers include growing demand for next-generation volatility management indices and regulatory easing in certain markets (such as Hong Kong), where relaxed rules around index-based insurance products have expanded the range of potential applications.
We believe this opportunity set could continue growing as more Apac markets might open up to these strategies.
This article is an abstract from the ‘SRP Index Report 2025: Custom & Strategy Indices’, which can be downloaded here.
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