Yuval, Marco and Marc, thanks a lot for the transparency and for asking our opinions. Much appreciated.
The proposed proxy screen reduces by 3 percentage points the annualized return and increases the drawdown by 7pp of my oldest screen in use on its out-of-sample-period (7 years, with a few forgotten revisions on the way so not 100% OOS). But, I’m not sure the difference between 23% and 26% CAGR on a 7-year period is really significant about the quality of your proxy or of my screen, or of any of them. I can live with this uncertainty.
Maybe the proxy screen can be improved.
No issue for me if you decide to use constituents of SPY or IVV to make a S&P 500 universe as PIT as reasonably possible.
Anyway, I wouldn’t pay S&P for that. Even if it’s perfectly legal it looks like racketeering.
What’s at stake here is the SP 500, 400, 600 and 1500 index universes and their historical data. They are currently included with our S&P data agreement and go back to at least 1999. The constituent data will disappear around August from our data service. Their index data will be marketed separately and they are asking around 20% of our current costs for it. Of course there are a lot more indexes than we need, but they don’t care that we do not use it.
If we do not accept their terms …
We will not try to re-create them using rules.
We will have a backup using ETF constituents data providers. Since the SP 500,400,600,1500 all have ETFs we should not loose any functionality. The only loss will be historical data that goes back to 2007 for the SP500 (not sure about the others yet) and maybe a little bit of “precision” as far as when stocks enter/exit the index.
That sounds good to me and we will not have to raise prices! It will also give us something we do not have: ETF constituent data for all US etfs which we may want to use for other ideas.
Marco, this is excellent. We can then all produce shadow ETFs with rank-selected stocks that outperform the actual ETFs. For DMs of shadow ETFs the current 10-year min backtest period will have to be shortened. This should be a good source of new revenue for all of us.
I just looked at their SPY constituent list and it has 506 entries. Five of those are due to multiple share classes (DISCA/DISCK, GOOG/GOOGL, FOXA/FOX, NWSA/NWS and UA/UAA). How will P123 handle that?
Also, I think this data should be accepted on a probationary basis for the first year. Perhaps this should include a restriction on its use in DMs.
I’m concerned about the quality of a new data source. What’s going to happen if by next year P123 decides that something’s wrong with the constituent lists (e.g. missing data, incomplete data, missing ETFs, etc). If user’s have already built the data into their models, pulling the plug may be painful for everyone. If this data is going to used in DMs, it better be available for years.
Data looks quite good. Comes from Reuters it seems. The main decision is whether to source SP universes from ETFs and save around 10X. We can always switch provider for the ETF constituents.
Thanks Marco, ETF constituents as universes would be really great!
What I’m afraid of is, next step in S&P pricing policy might be doing the same for GICS data. Is there a backup plan if it happens? (ETFs holdings would fix it only at sector level for large and mid caps, and on a limited time frame)