S&P Dow Jones Overhauls Growth-Value Classification, Affecting $375 Billion in Passive Funds

S&P Dow Jones Indices will overhaul how it classifies growth and value stocks, a change that will trigger rebalancing across index-tracking funds holding an estimated $375 billion in passive assets. The new methodology takes effect at the annual rebalance before the market open on December 21. Under the rules announced Friday, the index provider will incorporate intangible assets, estimated earnings and free cash flow into its measure of whether a stock is undervalued. It will also remove 12-month price momentum from its growth-potential criteria. The decision followed a consultation period. Bloomberg Intelligence analyst James Seyffart estimated at least $375 billion in passive funds track the affected indices. The revision aims to capture research-and-development spending and other internally developed assets that accounting rules typically expense rather than capitalize—a treatment critics say overstates valuations for intellectual-property-heavy firms and can exclude them from value indices. FTSE Russell is separately reviewing its own 50-50 growth-value split, with its consultation closing December 11.