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Overview
The S&P 500 index is one of the most commonly referenced U.S. equity benchmarks. This diverse index comprises over 70% of the total market cap of all stocks traded in the U.S. In 1957, it was modified to include a diversified basket of 500 common stocks. GPS compares investment returns to the S&P 500 and bases sector resource allocation on the S&P market breakdown.
Composition
The S&P 500 is not comprised of simply the 500 market value leaders, but rather it consists primarily of leading companies from a wide variety of economic sectors. Most professional analysts choose to use the S&P 500 as their preferred benchmark index due to its diversified sector coverage as well as its market value weighting.
The table below lists the current top ten holdings in the S&P 500 as well as the top ten sectors represented in the index (data as of July 2006).
| Company |
Symbol |
% of Index |
| General Electric |
GE |
3.2% |
| Microsoft |
MSFT |
2.9% |
| Exxon Mobil |
XOM |
2.7% |
| Pfizer |
PFE |
2.5% |
| Citigroup |
C |
2.3% |
| Wal-Mart Stores |
WMT |
2.1% |
| American Intl. Group |
AIG |
1.8% |
| Intel |
INTC |
1.7% |
| Bank of America |
BAC |
1.6% |
| Johnson & Johnson |
JNJ |
1.6% |
| Sector |
% of Index |
| Financial Services |
20.3% |
| Healthcare |
13.4% |
| Industrial Materials |
12.2% |
| Hardware |
10.8% |
| Consumer Goods |
9.7% |
| Consumer Services |
8.8% |
| Energy |
6.5% |
| Software |
4.5% |
| Business Services |
3.9% |
| Media |
3.9% |
Positives
The index is probably the single best way to track the overall performance of our nation’s largest and most dominant companies. Most investors are familiar with the S&P 500.
Drawbacks
Because they are unlikely to qualify due to the index’s high market cap requirements, the S&P 500 does not track some of the smaller, yet in many cases faster growing, companies on the market. In addition, because it is market value weighted, the largest companies in the index have a disproportionate amount of influence on the S&P 500’s results.
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