S&P Dow Jones Revises Growth/Value Classification Rules: Intangibles, Expected Earnings and Free Cash Flow In, 12-Month Price Momentum Out
NEW YORK — S&P Dow Jones Indices has adopted new rules for classifying stocks as growth or value, setting the two investment styles up for an overhaul, according to Bloomberg. Constituents of the affected indexes could see a major reshuffle, and funds tracking them may be forced to adjust holdings to match the new constituent lists.
Under the new rules, as reported by Gelonghui via Sina Finance, intangible assets, expected earnings and free cash flow will be factored into the assessment of whether a company's shares are relatively undervalued, while price momentum over the past 12 months will no longer be used as a measure of a company's growth potential. The report said the change followed a recent consultation and comes amid a long-running debate over whether traditional value-stock valuation metrics remain valid: researchers and fund managers believe value stocks' long underperformance partly reflects flaws in existing measures, especially the price-to-book ratio. The report did not say whether the price-to-book ratio itself is removed under the new rules, nor did it give the specific calculations, weights or thresholds for the new factors, or name the affected indexes or their constituents.
The new rules will take effect at the annual index reconstitution before the market opens on December 21 (the report does not state the year). Industry research analyst James Seyffart estimates that at least $375 billion in passive fund money is linked to the affected indexes; that figure is an estimate, not an actual rebalancing amount.
(GSM, from Bloomberg and Gelonghui via Sina Finance)
Source: GSM · USA (original Chinese edition)
Photo: 纽约证券交易所大楼，2024年6月，资料图。照片：Kidfly182，CC BY 4.0，经 Wikimedia Commons
