S&PDJI: the index is becoming the product

Custom indices are moving beyond their traditional role as benchmarks as investment strategies increasingly embed product-like features directly within the index.

Markets can change significantly during the trading session, and intraday observations provide a more accurate picture of current risk - Phil Brzenk

For S&P Dow Jones Indices (S&P DJI), the evolution is being driven by advances in volatility-control technology, the migration of structured payoffs into indices and growing demand for systematic strategies across insurance, ETFs and other investment wrappers.

The index provider has been expanding its capabilities across multi-asset, risk-managed and option-based strategies, while also broadening its underlying exposures beyond equities into areas such as commodities, rates and crypto.

That development reflects a wider shift in the structured products market, where indices are increasingly being used as the architecture through which investment outcomes are designed and delivered.

Intraday control

According to Phil Brzenk, managing director and global head of multi-asset indices at S&P DJI, one of the most significant changes has been the use of intraday data in volatility-control strategies.

Traditional volatility-control indices typically relied on end-of-day observations and could incorporate a two- or three-day lag before rebalancing. This could leave strategies slow to reduce risk during sharp market declines and equally slow to re-enter markets during recoveries.

“Markets can change significantly during the trading session, and intraday observations provide a more accurate picture of current risk,” Brzenk said.

The ability to monitor markets during the day also creates the potential to rebalance more quickly following a significant market shock or rapid change in direction.

“If there is a significant market shock or rapid change in direction, intraday data allows allocations to adjust sooner,” he added.

The development represents a response in part to some of the challenges experienced by earlier generations of volatility-control strategies during periods such as the Covid-19 market disruption.

S&P DJI is also combining intraday technology with additional overlays, including momentum and broader market signals, to make strategies more responsive to changing conditions.

Payoff migration

But the evolution of custom indices extends beyond risk management, according to Brzenk, as the industry increasingly “incorporates features historically associated with investment products directly into the index itself”. Whether described as custom indices, quantitative investment strategies (QIS) or systematic index strategies, the underlying concept is similar.

“More of the strategy logic sits within the index,” said Brzenk.

This can create a simpler proposition for investors and product manufacturers by reducing the distinction between the index and the mechanics of the product linked to it.

The development is particularly visible in the ETF market. Buffered outcomes have already migrated into ETF structures and S&P DJI is now seeing autocallable payoffs follow a similar path.

The provider has launched several autocallable indices that incorporate payoff mechanics traditionally associated with structured products directly into the index.

ETF providers can still obtain exposure through swaps with investment banks, but embedding the payoff into the index can provide greater visibility into how the strategy is constructed.

It can also give product providers greater flexibility when working with counterparties.

“Structured products will always involve bank counterparties, but the index itself provides greater visibility into the underlying payoff construction,” Brzenk said.

The next question is whether autocallable ETFs can replicate the growth seen in buffered ETFs in the US.

There has already been significant filing activity around autocallable ETFs and other complex payoff structures, although adoption remains at an earlier stage.

The attraction is clear, according to Brzenk, as ETFs can provide broader access than traditional structured products, which can have more limited distribution channels. “But the complexity of the underlying strategies also makes investor education increasingly important,” he said.

Index architecture

For S&P DJI, the role of the index provider is therefore not simply to calculate an index.

Brzenk points to intellectual property and independence from product manufacturing as important differentiators from investment banks. S&P DJI’s Custom Index Group provides white-label calculation services, but the wider business focuses on the development and implementation of systematic strategies.

“Investment banks are capable of delivering many similar capabilities, but one distinction is ownership of the underlying intellectual property,” he said.

Independence is another consideration. Unlike an investment bank, S&P DJI is not itself a product manufacturer, allowing it to focus on developing systematic indices that can be used across different parts of the financial ecosystem.

Transparency is central to that proposition, with published methodologies and disclosures underpinning many of its strategies.

The company is also developing its capabilities across different wrappers and client segments. “Investment banks, insurers and ETF providers can all use its indices in different ways, with banks providing products linked to the indices, insurers accessing them through OTC options and ETF providers typically obtaining exposure through swaps,” said Brzenk.

One example is the S&P MARC II 8% Index, which builds on the S&P MARC 5 Index. Brzenk said MARC 5 has historically been among the most widely adopted custom indices in the insurance market by number of clients, while the newer strategy was developed entirely in-house and could give insurers additional flexibility, including potential choice of hedge providers.

The approach also extends to new data and artificial intelligence, although S&P DJI is cautious about the use of opaque models.

“Explainability is fundamental,” Brzenk said.

The objective is to understand what drives performance and how a strategy behaves outside historical optimisation rather than relying on a black-box algorithm that produces attractive back-tested results.

That philosophy is likely to become increasingly important as the range of possible index strategies expands.

Brzenk sees “significant potential for custom indices as more structured product features migrate into different wrappers and investors increasingly consider systematic strategies as components of broader portfolios”.

Intraday volatility control is one example. The S&P 500 Distance Stabilizer Index, which uses timer options rather than traditional volatility-control techniques, is another.

For Brzenk, the longer-term opportunity is therefore not limited to developing individual indices. It is about using indices as building blocks for increasingly sophisticated portfolio strategies across asset classes.

“As structured products, insurance solutions and ETFs continue to converge, the boundary between an index and the product built around it is becoming increasingly difficult to define,” he said.

This Q&A is published in full as a preview of the SRP Custom & Strategy Report 2026, which includes selected extracts from the interview.

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