The S&P 500 is regarded by many as the most well-known and most frequently used benchmark of U.S. large-cap equities. The index includes 500 leading companies and captures approximately 80% coverage of investable market capitalization in the U.S. equity market. As of year-end 2013, over USD 7 trillion was benchmarked to the S&P 500 alone, with indexed assets making up USD 1.9 trillion of this total. Exchange traded products of the S&P 500 have been cross-listed in various markets across the globe, but what creates the international appetite for U.S. equities, especially the S&P 500?
In this paper, we will:
- Compare the S&P 500 to the leading large-cap equity benchmark in Australia
- Explore the significance of the S&P 500 in the global equity market
- Compare S&P 500 performance to that of active U.S. large-cap funds
COMPARISON OF THE S&P 500 AND THE S&P/ASX 200
The S&P 500 and the S&P/ASX 200 are well-known, large-cap equity benchmarks in the U.S. and Australian markets. Both indices represent about 80% of the total market capitalization and comprise the largest and most-liquid stocks of their respective markets. However, they differ significantly due to the different economic landscapes and financial market developments they reflect.
The S&P 500 is highly diversified among sectors, with no single sector dominating more than 20% of the index. Information technology (I.T.) is the biggest sector, accounting for 19% of the index. The financials and healthcare sectors are the other two biggest sectors, representing 16% and 13% of the S&P 500, respectively. The S&P/ASX 200 is highly concentrated in the financials sector, which dominates 45% of the index. Materials is the second-biggest sector with a weight of 17%.
Compared to the S&P/ASX 200, the S&P 500 has significantly higher weighting in the I.T. and healthcare sectors. Some of the biggest I.T. names, such as Apple, Microsoft and Google, are global leaders in the tech hardware, software and internet services industries. These companies represent more than 30% of the S&P 500’s I.T. sector and more than 22% of the S&P Global BMI’s2 I.T. sector. In the healthcare sector of the S&P 500, the three biggest companies are Johnson & Johnson, Pfizer and Merck, which are worldwide providers of healthcare and pharmaceutical products. These companies dominate more than 25% of the S&P 500’s healthcare sector and around 14% of the S&P Global BMI’s healthcare sector.