The S&P 500 is one of the most regarded gauges of US large-cap industries. The index comprises 500 leading companies, accounting for 80% of the US equity market share capitalisation and 50% of capitalisation of the global equity market.
The companies that are components of the S&P 500 are selected because of their market capitalisation, their liquidity and the sectors which they represent. The overall composition of the S&P 500 is such that it delivers a birds-eye view of the market and the economy as a whole, rather than capturing the goings-on from one or two individual sectors.
The index follows the weighted market cap route. It can be expressed in the form of a formula:
Weighted market capitalization in S&P 500 = Market price of the share X total number of outstanding shares.
Which company can be listed on the S&P 500?
There are several factors that a company has to meet before it can be enlisted on the S&P 500. For instance, to be listed on the S&P 500, the company necessarily has to be present in the USA and requires an unadjusted market capitalisation of $8.2 billion. Additionally, 50% of the total outstanding shares of the company must be available for trading, and the company is required to price them at a minimum of $1. Additionally, the company should have 50% of its fixed assets in the US and it should also draw half of its revenues from the US. Lastly, these companies are also required to have four successive quarters of positive earnings.
Over the course of 63 years, the S&P 500 have evolved as a flagship equity index whose developments and movements are monitored, not just in the USA but also around the world. Thousands of mutual funds and ETFs pump in billions of dollars every year into companies listed on the S&P 500.
How can Indian investors invest in the S&P 500?
Index funds are a handy way of investing in the US markets, including the S&P 500. There are lots of companies offering index funds that track the movement of the S&P 500 while levying considerably lesser expense ratios. For the uninitiated, index funds, instead of investing in a particular company or a few select companies, distribute their funds across companies in the index based on their weighted market cap.
These index funds have lower expense ratios and do not suffer from the behavioural biases of the fund managers. What’s more, index funds have been known to consistently outperform fund managers by a large margin for decades and decades.
Popular S&P 500 index funds
Some of the popular S&P 500 index funds are:
- Vanguard S&P 500 ETF
As the name indicates, the index fund tracks the S&P 500 and is one of the largest funds operating in the market. The fund has been operational since 2010, and currently commands an AUM of a whopping $1.07 trillion, in the last year alone has delivered a stellar performance of 30.4% and in the last three years has made investors richer by almost 12%.
- SPDR S&P 500 ETF Trust
This fund can be considered to be the granddaddy of all S&P 500 funds considering it was launched way back in 1993.
The ETF has over $500 billion in its kitty and has secured returns of 30.2% for investors in the last one year and 11.82% in the last three years. Its net expense ratio is 0.09%.
- iShares Core S&P 500 ETF (IVV)
This ETF is run by another reputable and prestigious investment firm called BlackRock. It has been operational since the year 2000 and has an AUM of $444.92 billion. It has a net expense ratio of 0.03%, which means that the fund house will charge you $3 for every $10,000 invested.
Final word
As a new investor in US markets, it is important to choose a platform that keeps your investment safe and secure. Using the Appreciate app, you can invest in any of the S&P 500 funds including the three major ones mentioned above. With the right amount of patience and conviction, investors can create wealth and prosperity for themselves by investing in the S&P 500 index.
