Broker Check

All indexes Are Not Created Equal

August 24, 2020
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A few weeks back we shared information about market indexes, often referred to as "the market". An index is a formula that follows the stock prices of companies within a specific area of the market. The S&P 500 tracks the 505 largest companies in the US. What often comes as a surprise is the S&P has a higher weighting to the largest companies of the S&P 500.
 
The chart below shows the top 5 companies by weighting of the S&P. As of 8/24/20, the index allocates nearly 20% to Microsoft, Apple, Amazon, Alphabet (Google), and Facebook. Whether you like the idea of a large concentration in tech stocks or not - they have accounted for a large part of the total index performance this year.
 
Source: Factset. Weights based on year end values. Alphabet represents both A & C shares.
Leadership of the S&P 500 does change over time. Looking back 20 years the only stock that has remained a part of the top 5 stocks is Microsoft. GE on the other hand was trading at $50 per share at the end of 1999 and is now trading around $6 per share.
  
So what will this look like 20 years from now? Of course, we don't know! What we do know is portfolios need to change over time. This is where we lean on the expertise of industry experts to seek out future leaders and take part in the total growth along the way.
  
  
The views and opinions expressed herein are those of the author(s) noted and may or may not represent the views of Capital Analysts or Lincoln Investment. The material presented is provided for informational purposes only. Nothing contained herein should be construed as a recommendation to buy or sell any securities. Past performance is no guarantee of future results. No person or system can predict the market. All investments are subject to risk, including the risk of principal loss. Investors cannot invest directly in an index.