The Standard & Poor's 500 Index may be the market benchmark that U.S. stock
investors have come to know best over the years, but as with any long-term
relationship, there are secrets that build up between partners.
At face value, the S&P 500 ($INX)
seems a ticket to mediocrity, a boring "buy and hold" strategy that
guarantees the U.S.
stock market average and nothing more.
But this buttoned-down benchmark has a racier side. If you're a long-term
shareholder in a mutual fund or exchange-traded fund that mirrors the S&P
500, or if you're banking on a large-cap portfolio manager to beat the index
over time, a look under the hood might be surprising.
For starters, these 500 large U.S. companies, ranked by market
value, constitute a dynamic group that reflects the world economy, not just the
American market.
Moreover, size matters: The biggest companies dictate index performance.
Stock dividends are crucial as well, accounting for one-third of the
benchmark's historical return.
How it compares
The S&P 500 kicks sand on market timers. Since its
introduction on March 4, 1957, when Standard & Poor's Inc. combined four
indexes into a single entity, the S&P 500 has returned 10.8% annualized. Had
you staked $1,000 that day and reinvested dividends, you'd have more than
$170,000 now.
If over that half-century you tried to time the market but missed the
index's 10 best months, you'd have to make do with around $52,000.
"It remains, in spite of its weaknesses, the pre-eminent index,"
said John Bogle, the founder of mutual fund giant Vanguard Group. It was Bogle
who made the S&P 500 accessible to individual investors in 1976 with the
first retail index fund, the Vanguard 500 Index Fund (VFINX).
"It's proved itself," he said.
Indeed, the S&P 500 is a litmus test both for investors striving to
outperform the market and those satisfied with market-matching results. An
estimated $1.3 trillion is given to mutual funds and other portfolios directly
tied to the benchmark. The Vanguard 500 fund alone commands about $190 billion,
making it the largest indexed offering.
An additional $4.5 trillion -- almost one-third of the U.S. market's
$14 trillion value -- is deposited with investment firms that justify their
fees by comparing their performance with S&P 500. "Did you beat the
benchmark?" is the bottom line for mutual fund managers and other
investment professionals who trade larger-capitalization U.S. stocks.
Just three in 10 managers in any given year can make that claim against the
S&P 500.
"It's a formidable opponent," said Burton Malkiel, a PrincetonUniversity economics professor and the
author of the classic "A
Random Walk Down Wall Street," which advocates index-fund investing.
"Year after year, it is a benchmark that is extraordinarily difficult to
beat."
Dynamic doings
Some people see indexing as a static, sanitized investment
strategy. To be sure, the S&P 500 represents about 75% of U.S. stocks by
market value, but it's hardly monolithic. Just 86 of the original 500 companies
are in the index today. The others were acquired, failed or dropped from the
ranks.
"The U.S.
market is changing, and the index changes with it," said Howard
Silverblatt, a senior index analyst at S&P.
It depends on what kind of investor you are and how much
you're willing to spend, but here are some guidelines.
Those changes haven't always been for the better. The S&P 500's strength
-- ranking stocks by market value -- can be a weakness. In runaway bull markets
especially, the index can become a poster child for speculative excesses. When
investors ignore valuation and bid shares of the biggest companies to
stratospheric heights, the index can become dangerously unbalanced.
Today, about 18.5% of the S&P 500 is tied to technology and telecom
stocks. That's second to financials, at 22% of the index's total value. Add the
health-care sector, at 12%, and more than half of the index is represented. But at the peak of the technology boom in March 2000, for instance,
highflying tech stocks commanded 34.5% of the S&P 500, while the equally
heated telecommunications sector reflected an additional 7.4%, effectively
transforming the benchmark into a large-cap tech and telecom index just when
many of these stocks were priced to perfection.
In the resulting bear market that persisted through most of 2002, index-fund
investors found no shelter as the S&P 500 lost half its value. After that
painful episode, traditional indexing came under attack. Newfangled mutual
funds and ETFs now cut the S&P 500 into creative slices, ranking stocks on
earnings and valuation measures, dividend yield and even an
"equal-weighted" portfolio that gives all 500 companies a 0.20% share
of the index regardless of market capitalization.
Such alternatives are not only less risky than a market-cap-weighted index,
but they also outperform, says Jeremy Siegel, a Wharton School finance
professor and a director of WisdomTree Investments, which offers ETFs that rank
stocks based on dividends and earnings. He said that tests of this strategy
show "better resistance in down markets, less volatility and higher
return."
A global portfolio
To most investors, the S&P 500 is the stock market's
apple pie, a uniquely American product. In fact, though the benchmark companies
are U.S.-based, their customers are increasingly global. The S&P 500 has so
much total international-sales exposure, your stock portfolio might not even
need a separate international component for diversification.
About 45% of the revenue of S&P 500 companies comes from outside the U.S., and that
figure could hit 50% by the end of the year, according to Silverblatt, the
S&P analyst.
For example, ExxonMobil (XOM, news, msgs),
the biggest S&P 500 company at 3.3% of the index, derives around 70% of its
sales outside the U.S., while No. 2 component General Electric (GE,
news,
msgs),
a 2.9% index position, brings in half its revenue from abroad. "It's like buying a global stock fund," Silverblatt said.
"You do have a lot of direct and indirect foreign exposure." With indexing, bigger isn't always better, but it is stronger. The S&P
500 is a concentrated index, and stocks with the largest market value -- stock
price multiplied by the number of publicly available shares -- have the
greatest influence on index returns.
The top 10 constituents in the S&P 500 now account for 20% of the
benchmark, and the 50 biggest companies make up almost half the index. It depends on what kind of investor you are and how much
you're willing to spend, but here are some guidelines. "The intent of the index is to represent the market, and not to pick
the best issues or the worst issues," Silverblatt said. "They have
liquidity, size, representation and profitability. We also have many issues
that are not making money, but that's the way in the market."
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发表于 2008-10-31 05:32 PM
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