Indexology^® Blog

As financial markets respond to the ongoing energy transition, market participants are exploring ways to address the related risks and opportunities. Indices can provide insights to these factors. In this context, the S&P Global Carbon Credit Index, which turned six years old on July 25, 2025, emerges as a potential tool for enhancing diversification and to help understand the performance of underlying carbon credit markets.¹

The S&P Global Carbon Credit Index tracks the most liquid segment of the tradable carbon credit futures markets, including futures contracts on European Union Allowances, U.K. Allowances, California Carbon Allowances and the Regional Greenhouse Gas Initiative and Washington Carbon Allowances (WCA), with pricing data from ICE Futures Pricing.

Exhibit 1 presents a correlation matrix that uses five-trading-day rolling returns to compare the S&P Global Carbon Credit Index with indices such as the S&P/IFCI Composite, iBoxx $ Liquid High Yield Index, iBoxx $ Liquid Investment Grade Index, S&P Listed Private Equity Index, S&P 500^® and S&P United States REIT, covering the period from July 25, 2019, to July 25, 2025. The results of this analysis show that the S&P Global Carbon Credit Index exhibited a low correlation with these traditional indices, particularly with the iBoxx $ Liquid Investment Grade Index and iBoxx $ Liquid High Yield Index, with correlation values of 0.23 and 0.36, respectively.

To evaluate the potential diversification characteristics of the S&P Global Carbon Credit Index, we explored 13 hypothetical compositions, as illustrated in Exhibit 2. Starting with Composition 1, which contained only indices #2 to #7 in Exhibit 1, we examined the hypothetical impact of adding weight to the S&P Global Carbon Credit Index in 5% increments, with the remaining composition weights retaining their original relative proportions. As a result, we rebalanced each composition by proportionately decreasing the weight of the other indices, ensuring they retained their initial allocation ratios from Composition 1 in all subsequent compositions, while excluding the weight of the S&P Global Carbon Credit Index. For example, in Composition 1, the S&P 500 represents 25% of the composition. In Composition 2, with the addition of the S&P Global Carbon Credit Index at 5%, the weight of the S&P 500 is adjusted to 23.75%, reflecting 25% of 95% of the total composition.

Next, we calculated the performance for each hypothetical composition (assuming a daily rebalance to the target weights) for the period from July 25, 2019, to July 25, 2025. The resulting annualized returns, annualized volatilities and corresponding return/risk ratios are summarized in Exhibits 3 and 4.

The results of this assessment were revealing. Composition 1 began with an annualized volatility of 15.17%, resulting in a return/risk ratio of 49.07%. As the weight of the S&P Global Carbon Credit Index increased, both the return/risk ratio improved and the annualized return increased. This trend peaked in Composition 9, which recorded values of 59.96% for the return/risk ratio and 10.04% for the annualized return, associated with a 40% weight to the S&P Global Carbon Credit Index.

However, beyond Composition 9, as the weights in the S&P Global Carbon Index grew larger, volatility began to increase, while the return/risk ratio declined.

Accordingly, we may conclude that over its live history, carefully considered tilts to the S&P Global Carbon Credit Index could have led to enhanced risk-adjusted performance. Moreover, due to its historically low correlation with other traditional asset class benchmarks, the S&P Global Carbon Credit Index may provide the basis for a strategic diversification of traditional market risks as they evolve, while simultaneously serving as a mechanism for addressing emissions exposure and mitigating the potential risks associated with the energy transition.

The author would like to thank Maya Beyhan for her continued mentorship and contributions to this blog.

¹ For more details on how carbon credit futures can help mitigate emission exposures and energy transition risks, see Beyhan, Maya, and Kennedy, William, “The role of indexes in the energy transition,” S&P Global, March 4, 2025.

For over 20 years, the S&P Indices versus Active (SPIVA^®) U.S. Scorecard has assessed how active mutual fund managers perform against their relevant S&P Dow Jones Indices benchmarks across various timeframes and asset classes. The scorecard’s methodology was enhanced in 2015 to include institutional accounts and was further extended in 2023 to include separately managed wrap accounts (SMAs), which have an annual fee structure that bundles (or wraps) all the administrative, commission and management expenses for the account.

Wrap accounts differ from institutionally focused separate accounts in that they allow smaller market participants to access professional portfolio managers, which were once only available to large institutional investors.¹ The SPIVA Institutional Scorecard is important because it facilitates comparisons between institutional and SMA/wrap accounts on a gross-of-fees basis, eliminating any possibility that fees are the sole contributor to a given manager’s underperformance.

Exhibit 1 demonstrates that 55% of equity SMAs/wrap accounts underperformed their benchmarks in 2024, down 5% from 2023. This difference was more pronounced in fixed income, where only 32% of SMAs/wrap accounts underperformed in 2024 but over 65% underperformed in the year prior. Nevertheless, and consistent with past SPIVA research, rates of underperformance for equities and fixed income increased over longer measurement periods. 80% of equity accounts and 57% of fixed income accounts failed to outperform their respective benchmarks over a 10-year period.

Active performance varied considerably by market capitalization. 67% of All Large-Cap SMA/wrap managers underperformed the S&P 500^® in 2024, generally consistent with their institutional mutual fund peers. Small-cap managers fared better, with only 19% underperforming their respective benchmarks in 2024, outpacing the 30% underperformance rate in 2023. Managers were perhaps aided by style bias opportunities to tilt toward outperforming large-cap stocks. Last year, The 500™ outpaced the S&P MidCap 400^® and S&P SmallCap 600^® by 11.1% and 16.3%, respectively.

Turning to fixed income SMA/wrap performance, Exhibit 3 shows that U.S. Aggregate and Core accounts delivered majority outperformance, with only 11% and 13% of accounts failing to outperform their benchmarks, respectively, which was an improvement over their institutional peers. However, Municipal accounts may have had a tougher time, with more than half underperforming the S&P National AMT-Free Municipal Bond Index.

Beating the benchmark can be a challenge regardless of investment vehicle, and SMAs/Wrap accounts are no exception. For a more complete analysis of performance across segregated institutional and SMAs/wrap accounts, we invite you to read our full 2024 SPIVA Institutional Scorecard.

¹ Comprehensive definitions for SMAs can be found in the eVestment Alliance Glossary of Terms.

For over two decades, S&P Dow Jones Indices has measured the performance of actively managed funds against their index benchmarks across the world through the SPIVA Scorecards. Take a closer look at the fundamental principles that guide our SPIVA research and discover the insights these scorecards offer across asset classes, regions and market segments.

To indicize means to provide, in passive form, a strategy formerly available only via active management. Until the early 1970s, there were no index funds; all assets were managed actively. The shift of assets from active to passive management is one of the most important trends in modern financial history. Our recent Annual Survey of Indexed Assets shows assets tracking the S&P 500^® amounted to USD 13 trillion as of December 2024.¹

One of the reasons for the popularity of indexing is its low cost relative to active management. As indexing has grown, investors have benefited substantially by saving on fees. We can estimate the fee savings by multiplying the difference between the average expense ratios of active and index equity mutual funds² by the total value of indexed assets for The 500™, the S&P MidCap 400^® and the S&P SmallCap 600^®.

When we aggregate the results, we observe that the savings in management fees in 2024 was USD 52 billion (see Exhibit 1), an increase of USD 12 billion from the USD 40 billion in savings observed in 2023. Of course, this USD 52 billion estimate understates the full cost savings of the index industry, since it encompasses indices only from S&P Dow Jones Indices (and not even all of those).

Obviously, the cost savings generated by the shift from active to passive management would be inconsequential if market participants lost more in performance shortfalls than they gained in reduced fees. However, as readers of our SPIVA^® reports are well aware, that’s decidedly not the case: most active managers have underperformed most of the time. Looking across our more than 24 years of history, large-cap active managers posted majority outperformance in only three years. Long-term underperformance has been even worse, with 91% of all large-cap U.S. managers lagging The 500 over the 20 years ending in June 2025. The rise of passive management has been a notable consequence of active performance shortfalls.

The lives of active managers have been further challenged by the indicization of markets, as the movement of assets to passive alternatives can cause the least capable active managers to lose the most assets and the quality of the surviving active managers to rise. As a result, the competition for outperformance becomes tougher,³ consequently raising the bar for surviving managers.

Advances in passive management have made it easier for investors to access efficient and inexpensive strategies spanning across the capitalization spectrum, geographies, sectors, factors and themes, compounding the benefits for numerous market participants globally.

¹ S&P Dow Jones Indices Annual Survey of Assets. S&P Dow Jones Indices, 2024

² See Ellis, Charles D., “The Loser’s Game,” The Financial Analysts Journal, Vol. 31, No.4, Jul/August 1975, pp. 19-26. New York: Financial Analysts Federation.

³ Expense ratios sourced from Investment Company Institute, 2025 Investment Company Fact Book.

August’s S&P Thematics Dashboard captures a market in motion—from precious metals rallying to multi-year highs to energy and technology themes. With the ongoing macro-political uncertainty in the backdrop, Silver (up 18%) reached a 14-year high, with Gold up 16% on dovish Fed expectations and a weaker U.S. dollar.¹ This momentum extended across the metals complex, with Metal & Mineral Mining up 16% and Copper gaining 12% on infrastructure spending prospects and supply-demand tightness.²

Alternative Medicine Takes the Stage

The standout performer of the month was Cannabis & Psychedelics, which soared 46%. Renewed investor enthusiasm was driven by shifting regulatory debates in Europe and the U.S.³ alongside new developments in the cannabis beverage market.⁴ Clinical confidence is also rising: mid-stage trials report that psychedelics might reduce anxiety symptoms—sometimes with effects lasting up to three months—highlighting renewed interest in psychedelic-assisted therapy’s potential.⁵ Strength also extended across the broader healthcare space, with Medical Treatment Services, Mental Health  and Health Insurance up 12%, 8.5% and 8%, respectively.

Energy Transition Shows Mixed Signals

Large-cap energy was among the top sector performers in the second quarter, with Batteries & Energy Storage climbing 12% on strong electric vehicle adoption, recycling breakthroughs and infrastructure buildout.⁶ Solar Energy gained 9%, while traditional power sources like Coal (up 6%) and Nuclear (up 4%) reminded investors of their persistence.

By contrast, Wind Energy declined 4% after federal funding cuts and policy reversals nearly completed halted offshore projects.⁷ The contrasting outcomes highlight how policy decisions and infrastructure investment trends are shaping winners and laggards within the energy transition.

Digital Assets and Regulatory Momentum

The digital asset space showed modest gains in August, with Cryptocurrency & Digital Assets up 3% and Blockchain & Distributed Ledger down -2%. Investor sentiment was positively shaped by regulatory debates, particularly around U.S. policy efforts to establish clearer rules for stablecoins and crypto market oversight. This shift in tone provided a constructive backdrop for the sector, even as price action remained relatively muted. By month’s end, the broader crypto market reached roughly USD 4 trillion in value, supported by growing optimism that regulatory clarity could open the door to greater institutional participation.⁸

Technology and Defense Overview

Technology themes lagged. Artificial Intelligence (-2%), Digital Transformation (-2%) and Cybersecurity (up 0.1%) all underperformed. Structural progress in AI and robotics continues: OpenAI launched ChatGPT Agent,⁹ Amazon reached one million robots with its DeepFleet logistic system¹⁰ and AWS debuted a marketplace for autonomous AI agents.¹¹

Meanwhile, defense tech gained visibility as the U.S. Army signed a USD 10 billion enterprise AI contract with Palantir, highlighting the growing role of commercial AI in national security.¹² European defense was down, with the S&P Europe Defense Vision Index falling 3%, while the S&P Kensho Global Future Defense Index was up 9%, driven largely by U.S. names.

Themes on the Radar: Powering the AI Era

AI-driven data center growth is supporting a renaissance of the U.S. grid dynamics. Electricity demand from AI data centers is projected to surge nearly thirtyfold by 2035, potentially accounting for 70% of all data center electricity consumption,¹⁴ and 13% of total U.S electricity demand.[14] In response to this rise, companies are also exploring the expansion of nuclear capacity, including Constellation Energy’s multibillion-dollar commitment to restart key facilities and expand generation capacity.¹⁵

These developments are translating into tangible market growth: the Data Center theme was up approximately 39% YTD, while energy infrastructure-linked names—reflected in the S&P U.S. Power Infrastructure Select Index—have climbed approximately 17% YTD.

Conclusion

August’s results highlighted the evolving market across multiple megatrends—from Healthcare & Wellness to Innovative Technology. Many market participants are balancing traditionally defensive positions such as precious metals with growth-driven exposures in areas like alternative medicine, energy transition and AI infrastructure. Track these developments and more in our monthly dashboard updates.

¹ Gold Hits Record High on US Rate-Cut Bets, Growing Debt Concerns – Bloomberg

² Base Metals ETFs Rally as Industrial Demand Surges—Here’s How You Can Benefit – Appreciate

³ Psychedelics regain momentum in 2025 on political tailwinds, clinical wins

⁴ The buzz around THC drinks is going flat – Business Insider

⁵ LSD shows promise for reducing anxiety in drugmaker’s midstage study – AP News

⁶ 97% Battery Recycling Breakthrough”: Princeton NuEnergy Opens First U.S. Commercial Facility, Cutting Costs 38% and Slashing Environmental Impact – Energy Reporters

⁷ Trump administration cancels $679 million for offshore wind projects at ports – NPR

⁸ Crypto sector breaches $4 trillion in market value during pivotal week – Reuters

⁹ OpenAI’s new ChatGPT Agent can control an entire computer and do tasks for you – The Verge

¹⁰ Amazon DeepFleet AI Model for Robotics – Digital Commerce 360

¹¹ The Next Big Theme: August 2025 – Global X

¹² US Army pools contracts into up to $10 billion Palantir deal – Reuters

¹³ Deloitte Report: AI Data Center Power Demand to Surge 30x by 2035 – T&D World

¹⁴ Keller C., Thompson W., Utsav, A, “AI revolution: Meeting massive AI infrastructure demands” – Barclays

¹⁵ Constellation Commits to Billions of Dollars in Energy Investments at Inaugural Pennsylvania Energy and Innovation Summit – Constellation