Reader’s Perspective: Question and Answer with Jodie Gunzberg, CFA, Managing Director, Head of U.S Equities, S&P Dow Jones Indices

This article features an interview with Jodie Gunzberg, CFA, Managing Director, Head of U.S Equities, S&P Dow Jones Indices. Based in New York, New York, Jodi is the chief spokesperson and product strategist for S&P’s DJI’s U.S. Equity Indices which includes the S&P 500 and The Dow. Prior to this role, Jodie joined S&P DJI in 2010 as Director of Commodities product management. Prior to S&P DJI, Jodie was with Morningstar and Ibbotson after starting her career with New York Life. In addition to being a CFA charterholder, Jodie is also currently a curriculum consultant with the CFA Institute. Previously, Jodie was a member of the NYSSA Board of Directors. Last but not least, Jodie earned her MBA from the University of Chicago, Booth School of Business, and is a fellow Emory University graduate as well. You can learn more about Jodie and her firm at the website of https://us.spindices.com/. Last but not least, thank you Jodie for your time, insight and support in working with me on the article. Please read the question and answers to learn about her perspective on benchmarking college tuition inflation, and hope that the article provides you with an opportunity to learn more from your peers.

Question 1 (Paul Curley, Editor of the 529 Dash): The launch of the S&P Target Tuition Inflation Index is a new innovative development in the college financial planning marketplace. Can you provide some more information and insight on what is it is and why it was first produced?

Answer 1 (Jodie Gunzberg, CFA, Managing Director, Head of U.S Equities, S&P Dow Jones Indices): It’s no secret that the cost of college has increased exponentially as compared to general inflation, so it has been challenging to save and grow assets to match tuition.  To help solve this problem, the S&P Target Tuition Inflation Index was recently launched to reflect inflation of college tuition and fees over long-term periods by using a blend of inflation bonds and corporate bonds with an overlay of short equities.  This constituent mix is the result of research that shows tuition inflation is dependent on general inflation plus a spread that is measured by real return plus breakeven inflation plus a credit spread less an equity risk premium.  The dynamic blend of equities and corporate bonds adjusts the spread above general inflation to target tuition inflation growth.

Question 2: How can advisors and the industry use the index?

Answer 2: Market participants may use the index to help preserve the purchasing power of assets for tuition.  Rather than on a stand-alone basis, it may also be used in a core/satellite strategy as the core while equity allocations can provide additional potential growth opportunities in a satellite.  Another application is to use the index inside of a glide path strategy that weights risky assets more heavily in the accumulation phase and moves toward the S&P Target Tuition Inflation Index in the transition and decumulation phases.  While 529 plans may offer a product that tracks the index, prepaid tuition plans can use the index to manage their assets to keep up with their liabilities.  Similarly, endowments and appropriations can hedge their plans by using the index that is negatively correlated with the stocks that contribute largely to their volatility.  The bottom line is that the index aims to provide a method for college saving “assets” to match tuition “liabilities”.

Question 3: Goal-based investing is an important focus for advisors as it really gets down to what they we trying to achieve for our clients, whether it be retirement or college. Do you currently have a similar retirement index, and how does the S&P Target Tuition Inflation Index compare and contrast?

Answer 3: While the S&P Target Tuition Inflation Index is unique, it acts much like a “college TIPS”.  That is, the future tuition liability can be thought of as being denominated in discounted units of education.  An analogy might be to think the index is to college tuition and fees inflation as TIPS are to U.S. CPI.  On the retirement front, S&P DJI offers a family of indices called S&P STRIDE (Shift To Retirement Income and Decumulation) that uses TIPS to address inflation risk to and through retirement. If the S&P Target Tuition Inflation Index is put into a similar framework, it may also address inflation risk, but for college tuition rather than general expenses. The 80% allocation to TIPS in the tuition index is similar to the allocation to TIPS as one nears the age of 65.  The difference is that the S&P STRIDE is multi-asset with TIPS as a constituent for inflation protection, whereas the tuition index is multi-asset to create the inflation plus a spread to measure tuition inflation.

Question 4: How can product partners and state agencies better support you now in your current role?

Answer 4: Indices are meant to bring transparency and cost-effective solutions to market participants.  Product partners work with S&P DJI to create investible vehicles to enable market participants to access and gain exposure to the underlying indices.  State agencies may use our indices for information to help make decisions or manage risk.  Together we can educate the market and provide tools to enable goals to be met.

Question 5: Where can we go to get more information or stay up to date on this important development?

Answer 5: For more information, please visit our website at: https://us.spindices.com/

For more information on the S&P Target Tuition Inflation Index, please visit our website at: https://us.spindices.com/indices/multi-asset/sp-target-tuition-inflation-index

For more information on the S&P STRIDE, please visit our website at: https://us.spindices.com/index-family/multi-asset/sp-stride

Editor’s Final Note: Thank you Jodie Gunzberg for your time and insight in working with me on the article, and much appreciated. Also, I would like to provide a special thank you to the readers of the article for learning from your peers, for your support and your engagement. Have the college financial planning discussion with your clients today.