S&P 500 Index

S&P 500 is part of a family of indices

The S&P 500 is part of a ’family’ of indices that aim to provide a reliable overview of current developments in the US stock market. The S&P 500, combined with both the S&P MidCap 400 for mid-sized companies and the S&P SmallCap 600 for smaller companies, forms the S&P Composite 1500. In addition to this composite index, there is also the S&P Total Market Index, which includes all stocks of American companies listed on Wall Street, including small businesses.

Which stocks qualify for the S&P 500?

For a stock to qualify and be included in one of the indices, it must meet several criteria:

• The stock must be listed on an American stock exchange, such as the NYSE or Nasdaq.
• This must be the stock's initial listing.
• The company must also publish a so-called 10-K annual report.
• The company must derive most of its revenue from the United States (US), and the majority of its assets listed on the balance sheet must be based in the US.
• After going public, a company must have had a stock listing for at least twelve months.

How is the S&P 500 composed?

A dedicated committee determines the composition of the S&P 500 and the other indices that belong to the S&P family. To be eligible for inclusion in the main grading scale of the S&P 500, a company must have a minimum market value of at least $ 12.7 billion (2023). For inclusion in the S&P MidCap 400, the market value ranges between $4.6 billion and $12.7 billion. The threshold for the S&P SmallCap 600 is $750 million to $4.6 billion.

The so-called Index Committee consists of employees from the S&P Dow Jones Indices. The committee meets once a month to review the index's composition and the impact of actions taken by the listed companies that can affect the stock price, such as dividend pay-outs or stock splits. The committee also considers and reviews new potential candidates that could be included in the indices. The committee's meetings are confidential because changes in the composition of the S&P 500 and other gauges can be market-sensitive information.

On March 10, 2023, the S&P 500 index announced its most recent rebalancing, which became effective before markets opened on March 15, 2023. As a result of the failure of Silicon Valley Bank, SVB Financial Group was removed from the S&P 500 Index. The Federal Deposit Corporation (FDIC) took control of the group, rendering it ineligible for inclusion in the index. In its place, Insulet Corp was added to the index. On the same date, Signature Bank was also taken into FDIC Receivership, leading to its removal from the index. Bunge Ltd was selected as the replacement for Signature Bank.

How is the S&P 500 calculated?

The weighting of stocks in the S&P 500 is based on the market value of the free float, which refers to the tradable portion of the shares. Large companies with higher market values have a greater influence on the index than small companies with lower market values. To calculate the index level, the price of each stock is multiplied by the number of tradable shares. This sum is then divided by the so-called divisor. The divisor incorporates changes that affect a stock's price, such as stock splits, stock issuances or dividends.

Equal weight variant of the S&P 500

The market value of the top ten companies within the S&P 500 index account for approximately 30% of the index's value. There is often criticism about the proportions within the S&P 500, as the index is considered less diversified due to these larger companies. In the Equal Weight variant of the S&P 500, each company is given an equal market share, resulting in 0.02% per company. Although the Equal Weight S&P 500 is not an official index, this concept is sometimes used when constructing ETFs (exchange-traded funds) that track the S&P 500.

S&P 500 is a price return index

The S&P 500 is a price return index, not a total return index. This means that dividends are not included in the index calculation. Dividends are an important part of the return that stock investors can earn. As a result, the long-term development of the index's level provides an incomplete picture of the actual return an investor has made in the S&P 500.

Buying individual stocks in the S&P 500

There are several ways to invest in the S&P 500. You can buy individual stocks that are part of the index. The companies included in the S&P 500 are among the largest American companies. There is usually a lot of trading activity going in the buying and selling of their stocks. In theory, it is possible to buy all the stocks in the S&P 500 and replicate the index, but in practice, it is nearly impossible. One way to invest in the S&P 500 is through an actively managed fund or an ETF.

Investing in the S&P 500 with ETFs

An ETF is a product that tracks an index, commodity, bond or a combination of products. The goal of an ETF is to closely match the performance of the underlying products. While owning a share of a company represents partial ownership of that company, an ETF represents ownership of a product that simply tracks the value of underlying products. To minimise deviations from the index's performance, the ETF issuer must build a portfolio with comparable positions. This means that an issuer of an ETF based on the S&P 500 must purchase the five hundred stocks.

The first ETF launched in 1993 was an ETF on the S&P 500. This was the S&P 500 Depository Receipt, known as SPDR and pronounced as "spiders". To invest in ETFs, you need a broker to place an order. Through our platform, you can invest in a wide selection of ETFs. An example of an ETF on the S&P 500 is the iShares Core S&P 500.

To invest in ETFs, you need a broker to place an order. On our platform, you can invest in many ETFs. We also offer a Core Selection of ETFs you can invest in with reduced fees. Please note that the Core Selection is subject to change and falls under a Fair Use Policy. Currency, external product and spread costs may apply.

History of the Standard & Poor's 500

The S&P 500 was founded in 1957 by two employees of credit rating agency Standard & Poor's (S&P), Paul Babson and Lewis Schellbach. The history of the S&P company dates to 1860 when businessman Henry Varnum Poor started a publication about the railway industry, which was growing rapidly at the time. The S&P 500 is one of the many indices of S&P Dow Jones Indices. This is a part of the S&P Global, which is the parent company. Also owns the Dow Jones Industrial Average (known as the Dow). Thus, S&P holds two of the three influential indicators mentioned in almost every news report about the American stock market. The third, the Nasdaq, belongs to the company of the same name.

The information in this article is not written for advisory purposes and does not aim to recommend investments. Please note that data may have changed since the writing of this article. Investing involves risks, and you may lose all or a portion of your investment. We recommend investing only in financial instruments that align with your knowledge and experience.

Sources: S&P Global