Innovating Fixed Income: How Corporate Behavior Shapes New S&P DJI Fixed Income Benchmarks

  ↵Image Source: 
In recent years, fixed income indices have evolved to consider additional factors beyond traditional financial metrics. This evolution has led index providers to diversify their offering with more complex index constructions to cater to client needs. One such advancement is the inclusion of factors that reflect corporate behavior, where companies demonstrating responsible corporate practices are overweighted.As a driver of fixed income index innovation, S&P Dow Jones Indices has partnered with JUST Capital to develop new benchmarks for the U.S. corporate bond market: the iBoxx JUST Capital USD Investment Grade Benchmark and the iBoxx JUST Capital USD High Yield Benchmark. The new benchmarks exclude any issuer with a rank in the bottom half of the JUST Capital annual ranking.JUST Capital assesses companies based on key factors such as worker treatment, customer relations, community impact and governance practices using a comprehensive methodology. Their rankings are the result of an in-depth analysis that includes data from public sources, company reports and direct engagement with approximately 1,000 of the largest US-listed, publicly-traded companies (by market capitalization). To ensure their evaluations reflect broader societal values, JUST Capital conducts surveys that capture public sentiment regarding what matters most about corporate behavior. In 2024, the qualitative and quantitative survey yielded 20 issues and their relative importance to the U.S. public. The issues are classified into five groups based on the stakeholders they affect the most: Communities, Customers, Environmental, Shareholder & Governance and Workers.Incorporating JUST Capital scores into fixed income indices offers an approach focused on corporate behavior. This approach may allow market participants to find a balance between benchmark performance and incorporating corporate behavior considerations.In the JUST Capital ranking for 2024, the Utilities and Semiconductors & Equipment sectors lead the way, with an average ranking of 320 and 341, respectively.Utilities companies have maintained their top position for Communities for the third consecutive year, with an average rank of 242. Meanwhile, the Computer Services sector has secured the highest average rank for Customers, at 205, for the second year running. Personal Products firms excel in Environmental considerations, showing an average rank of 187 for three years in a row. Additionally, Utilities companies again lead in Shareholders & Governance, achieving an impressive average rank of 330. Lastly, the Pharmaceuticals & Biotech sector ranks highest for Workers, with an average rank of 255, also for the second consecutive year.¹A comparison of the industry composition between the standard iBoxx $ Corporates Index and iBoxx USD High Yield Developed Markets Index and their JUST Capital counterparts tells a consistent story. The iBoxx JUST Capital USD Investment Grade Benchmark index shows a notable tilt toward the Consumer Services and Health Care sectors, with overweights of 3.7 and 3.4 percentage points, respectively. This trend becomes even more striking in the iBoxx JUST Capital USD High Yield Benchmark index, where the Consumer Services and Utilities sectors are over-represented by 21.0 and 5.7 percentage points, respectively. On the other hand, the most underweighted sectors include Energy, Consumer Goods and Core Financials, illustrating an adjustment in industry exposure between these indices.(Click on image to enlarge)
While the rating composition of the iBoxx $ Corporates Index and the iBoxx JUST Capital USD Investment Grade Benchmark index shows similarities, the comparison within the high yield space presents a noteworthy distinction. The iBoxx JUST Capital USD High Yield Benchmark index shows a substantial 89.1% weight to BB-rated bonds, reflecting a significant increase of 35.3 percentage points compared to the iBoxx USD High Yield Developed Markets Index. In contrast, B rated and CCC rated bonds account for just 10.5% and 0.4%, respectively, with each representing decreases of 23.1 and 11.2 percentage points, respectively, underscoring a shift toward higher-quality credit within the iBoxx JUST Capital USD High Yield Benchmark index.These new indices offer a unique approach to tracking corporate behavior and responsible practices, while measuring the broad fixed income market. As the landscape of fixed income continues to evolve, the iBoxx JUST Capital USD Investment Grade Benchmark index and iBoxx JUST Capital USD High Yield Benchmark index stand out as innovative tools that seek to reflect both market dynamics and corporate behavior.¹Please see the  for more information.More By This Author: