What Is the S&P 500 Index?
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:
|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.