The S&P 500 is a renowned benchmark for large-cap, U.S. 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.1 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 Hong Kong;
- Explore the significance of the S&P 500 in the global equity market; and
- Compare S&P 500 performance to that of active U.S. large-cap funds.
COMPARISON OF THE S&P 500 AND THE HANG SENG INDEX
The S&P 500 and the Hang Seng Index are widely regarded as primary indicators of overall market performance in the U.S. and Hong Kong equity markets, respectively. Both indices comprise the largest and most-liquid stocks from their respective markets. However, the indices vary significantly due to the different economic landscapes and financial market developments they reflect.
The S&P 500 currently comprises 500 companies and represents around 80% of the market cap of the U.S. equity market, while the Hang Seng Index consists of 50 constituents and captures approximately 60% of the Hong Kong Stock Exchange. Both indices are free-float market capitalization weighted, but the S&P 500 has much greater stock diversification than the Hang Seng Index.
The 10 largest S&P 500 members represent only 18% of the index, and the largest component, Apple, has a weight of just 4%. In contrast, the 10 largest stocks in the Hang Seng Index dominate 60% of the index, and the two largest members, HSBC and Tencent, carry stock weights as high as 11% and 10%, respectively.