S&P explained that when investors hold a short position in a security they must pay dividends and interest for borrowed stock. The return of the S&P 500 Index has an inverse relationship with the total return of the S&P 500, which includes both dividends and price movements.
The costs of borrowing the securities are not
included in the index calculation, but there is an
adjustment to reflect the interest earned on both the
initial investment and the proceeds from selling short
the securities in the S&P 500. The assumptions used
reflect normal industry practice, S&P said.
“The S&P 500 Inverse Index is the first in what will be a series of leveraged and inverse indices to be launched by Standard & Poor’s across multiple regions and asset classes,” said Srikant Dash, Head of Global Research and Design at Standard & Poor’s, in the announcement. “With today’s launch, market participants will finally be able to measure the performance of long and short positions in the U.S. equities market as determined by the S&P 500.”
More information on the S&P 500 Inverse Index is at www.standardandpoors.com/indices under “Equity Indices” and then “S&P U.S. Indices.”