S&P Dow Jones Indices Updates Growth and Value Criteria

S&P Dow Jones Indices announced new rules for categorizing equities into growth and value investment styles, effective during the annual reconstitution before the market opens on December 21. The index provider is adding intangible assets, forward earnings, and free cash flow to its criteria to better determine if a company is undervalued relative to its share price.

Under the new rules, 12-month price momentum will no longer be used to rank growth potential. These changes address long-standing debates regarding the efficacy of conventional value metrics, such as price-to-book, which often fail to account for research and internally developed assets.

The reshuffle is expected to impact approximately $375 billion in passive index-tracking funds. This will force fund managers to adjust their holdings to align with the new constituents. Separately, FTSE Russell is reconsidering the 50/50 split between growth and value stocks in its own benchmarks.