U.S. equities represent a significant portion of the global equity opportunity set, with characteristics that offer potential diversification benefits for Japanese markets. In this paper, we:
- Outline the global relevance of the U.S. equity market;
- Illustrate the U.S. equity market’s distinct sector exposures;
- Demonstrate how the inclusion of U.S. equities might improve risk and returns; and
- Summarize the record of actively managed equity funds in comparison to S&P DJI’s flagship equity benchmarks.
The Size and Relevance of the U.S.
The U.S. equity market represents a sizeable portion of the global equity opportunity set. Exhibit 1 shows that U.S.-domiciled companies accounted for 59.3% of the float market capitalization of the global equity universe at the end of June 2023, nearly nine times larger than the Japanese equity market (6.6%).
Beyond U.S. Large Caps: The S&P 1500®
Launched in 1995, the S&P Composite 1500®—otherwise known as the S&P 1500—is designed to measure the performance of the U.S. equity market. The S&P 1500 is a float market capitalization-weighted combination of three component indices: the S&P 500®, S&P MidCap 400® and S&P SmallCap 600®, covering the large-, mid- and small-cap U.S. equity segments, respectively. Each index follows the same comprehensive, rules-based and transparent methodology, which has historically helped the S&P 1500 to avoid less liquid, lower priced and lower quality stocks.
Although the large-cap segment represents a sizeable portion of the U.S. equity market—on average, the S&P 500 accounted for over 80% of the U.S. stock market, historically—the breadth and depth of the U.S. equity market means that smaller U.S. size segments are as large as some countries’ equity markets. For example, taken as standalone countries, the S&P MidCap 400 and S&P SmallCap 600 would have been the 4th and 12th largest countries in the S&P Global BMI, respectively, at the end of 2022.