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 2014, over USD 7.8 trillion was benchmarked to the S&P 500, with indexed assets making up USD 2.2 trillion of this total. Exchangetraded products based on 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 equity benchmark in New Zealand;
- 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 S&P/NZX 50 INDEX
The S&P 500 and the S&P/NZX 50 Index are widely regarded as primary indicators of overall market performance in the U.S. and New Zealand equity markets, respectively. Both indices comprise the largest and mostliquid 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 S&P/NZX 50 Index seeks to measure the performance of the largest 50 stocks listed on the Main Board of the NZX and covers approximately 90% of New Zealand equity market capitalization. Both are free-float, market-cap-weighted indices, but the S&P 500 has much greater stock diversification than the S&P/NZX 50 Index.
Compared to the S&P/NZX 50 Index, the S&P 500 is much more diverse in terms of the weight constituents hold in the 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 S&P/NZX 50 Index dominate 55% of the index, and the largest two members, Spark New Zealand and Fletcher Building, carry stock weights as high as 9% and 8%, respectively.