S&P Dow Jones to Update Rules for Growth and Value Stocks

S&P Dow Jones Indices plans to update its rules for how it sorts growth and value shares. The new system will use intangible assets, forward earnings, and free cash flow. It will no longer rely on 12-month price momentum. This shift will impact about $375 billion of passive funds tied to the index. Meanwhile, FTSE Russell is also looking at making changes due to the strong dominance of technology companies.

Context

Major index providers regularly update their classification methods to keep up with shifts in the wider financial markets. When index rules change, large amounts of passive investment funds must automatically adjust their holdings to match the new criteria. These adjustments help ensure that indices accurately reflect modern corporate valuations and sector trends.