Q3 Index Rebalance Highlights + Report

June 30^th, 2021 Rebalance Highlights

Summary:

As the economy fully reopens and consumer confidence continues to rise, the global economy has witnessed a tremendous surge in consumer spendings, especially in-person services. According to the forecast from The Conference Board1, the US real GDP growth will rise to 9% (annualized) in Q2 2021 and 6.6 percent (year-over-year) in 2021. Besides, another round of government spending is likely to further stimulate the economy as the White House is currently negotiating a $2 trillion infrastructure and tax plan. From a global perspective, strong signs of economic recovery emerge as S&P Global Ratings upgrades growth forecasts for Asia-Pacific to 7.3% for 2021 from 6.8% previously. Additionally, empirical data has shown that the eurozone economy is less sensitive to social-distancing restrictions than a year ago2, indicating the negative impacts of COVID-19 has been lessened.

During Q2 2021, the global innovation index has witnessed strong growth as a result of the global economic rebound. The global innovation index has returned 7.36% while its benchmark MSCI ACWI index has returned 7.21% in Q2 2021. Similar to Q1 2021, the outperformance is largely attributed to the selection effects in the Electronic Technology, Health Technology, and Producer Manufacturing sector, which were overweighted by the innovation indexes relative to their benchmarks based on M-CAM’s 2021 Q2 economic forecasts.

Moving into Q3 2021, the weights of the Electronic Technology and Health Technology sectors has slightly decreased compared to their weights at the beginning of Q2 2021. However, these two sectors still dominate the index total weights over 40% as the companies in these sectors are likely to be the direct beneficiaries of the economic recovery and government spendings. Besides, the 2021 Q3 weights of the producer manufacturing sector increased significantly for the U.S. and global economy, signaling a positive perspective on the recovery of systematic production, supply chain, and consumer confidence. For the U.S. index, the weight of the consumer Non-Durables sector has plunged by the largest (-1.83%) compared to Q2 2020. For the Global index, the largest weight drop (-0.57%) resides in the Industrial Service sector compared to Q2 2020. The weight drop of these two sectors is possibly the result of their strong outperformance during Q2 2020, which gives investors a more neutral view towards their growth moving into the third quarter.

During Q2 2021, the global innovation index has witnessed strong growth as a result of the global economic rebound. The global innovation index has returned 7.36% while its benchmark MSCI ACWI index has returned 7.21% in Q2 2021.

The full report including detailed figures and weightings can be downloaded as a PDF here