S&P 500 Index
The S&P 500 index (or Standard & Poor’s 500 Index) includes 500 of the top US companies in leading industries.
The index is weighted by market capitalisation, which refers to a company’s total number of outstanding shares multiplied by its share price.
The S&P 500 index, which was created in 1957, is considered to be an excellent proxy to the US stock market performance.
It was also the first US market capitalisation-weighted stock market index.
According to Standard & Poor’s, as of 31 January 2020, the S&P 500 index had 505 index constituents to be exact. This may come as a surprise to investors who have always believed that the index only has 500 stocks.
To be added to the S&P 500 index, a company must meet the following criteria:
- It must be a US company;
- The market capitalisation must be US$8.2 billion or higher;
- It must have a public float (shares that are in the hands of the public, as opposed to management, for example) of at least 50% of its outstanding shares;
- It must have positive as-reported earnings in its most recent quarter, and over the most recent four quarters summed up; and
- The stock must have adequate liquidity and must trade for a reasonable share price.
REITs are eligible to be included in the index, but not ETFs.
As of 31 January 2020, the top 10 constituents of the S&P 500 index are:
| Constituent | Ticker Symbol | Sector |
|---|---|---|
| Microsoft Corp | MSFT | Information Technology |
| Apple Inc | AAPL | Information Technology |
| Amazon.com Inc | AMZN | Consumer Discretionary |
| Facebook Inc A | FB | Communication Services |
| Berkshire Hathaway B | BRK.B | Financials |
| Alphabet Inc A | GOOGL | Communication Services |
| Alphabet Inc C | GOOG | Communication Services |
| JP Morgan Chase & Co | JPM | Financials |
| Johnson & Johnson | JNJ | Health Care |
| Visa Inc A | V | Information Technology |
Together, they take up 23.8% of the index.
Based on the GICS sector classification, information technology (at 24.2%) takes up most of the S&P 500, followed by healthcare (13.8%), and financials (12.6%).
Over the past 10 years, the S&P 500 index has produced an annualised return of 11.8%.
As of 20 February 2020, the index had a one-year return of 21.1%.
If you wish to invest in the S&P 500 index, you can do so by purchasing an ETF that tracks the index.
The Vanguard S&P 500 ETF is one way to gain exposure to the index. It has an expense ratio (fees charged by ETF managers) of 0.05%, which is very low by any standard.
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Disclaimer: The information provided by Seedly serves as an educational piece and is not intended to be personalised investment advice. ​Readers should always do their own due diligence and consider their financial goals before investing in any stock.Â
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