Musings

27 March 2013 - 16:57, by , in Musings, No comments

When it comes to the performance measurement of the stock market, the S&P 500 is considered to be one of the most widely followed and accepted benchmarks.  The interesting thing about the S&P 500 is that it is a market cap based index, i.e. the bigger the company the more influence it has on the index.

The top 10 holdings in the S&P 500 account for almost 20% of the weighting in the index – the top 10 names are:

 

Exxon Mobil
Microsoft Corp
Wal-Mart Stores
Google Inc’A’
Apple Inc
Johnson & Johnson
Procter & Gamble
Intl Bus. Machines
AT&T Inc
JPMorgan Chase & Co

 

As a matter of fact the top 38 issues account for 50% of the weighting in the S&P 500.  That means 462 companies account for the rest – perhaps it should be called the S&P 50… oh wait we already have the Dow Jones 30, couldn’t have two indexes too similar, how would the publishers differentiate themselves.

If we were to take a look at performance of the S&P 500 – the top 10 stocks that have attributed the most return to the S&P 500, you would expect in a market cap weighted index that they would be some of the largest names. Low and behold 5 of the names are the same, with the other 5 names in the top 20.

 

Google Inc’A’
Genl Electric
Berkshire Hathaway’B’
Procter & Gamble
JPMorgan Chase & Co
Chevron Corp
Pfizer, Inc
Johnson & Johnson
Exxon Mobil
Philip Morris Intl

 

Now I wonder what the overlap is for the top year to date performers in the S&P 500:

 

Constellation Brands’A’
Safeway Inc
Hewlett-Packard
Heinz (H.J.)
Sealed Air
Cabot Oil & Gas
Tesoro Corp
Avon Products
Computer Sciences
Range Resources

 

Whoops there isn’t any.

Now the risk you take as an asset manager is that if you are being benchmarked against the S&P 500 – you better own the top handful of names – you can’t afford to be wrong on your own.

However, if you are looking for some businesses that seem to be doing well in a turbulent economic environment, perhaps looking into the index data could become a fertile ground for stock selection.

This post wasn’t to disparage the use of the S&P 500 as a benchmark or an investment vehicle but to highlight the fact that with a little bit of “scratching” a lot of data can appear.

That’s it from me and bye for now.

 

*All index data mentioned here was sourced from:

http://www.standardandpoors.com/indices/sp-500/en/us/?indexId=spusa-500-usduf–p-us-l–

About author:
Damien is the founder and owner of Lanyon Advisory Services and has a extensive knowledge and experience in financial planning and wealth management.

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