S&P 500

The S&P 500 is maintained by S&P Dow Jones Indices. Rather than simply taking the 500 biggest companies, an index committee selects members that meet published criteria: a company must be based in the US, be large enough, have enough shares freely available to trade, be liquid, and have positive earnings in its most recent quarter and over the latest four quarters combined. Constituents are weighted by free-float market capitalisation, so the largest companies have the most influence. The index holds slightly more than 500 shares because some companies have more than one class of stock.

Because it covers most of the value of the US stock market, the S&P 500 is the standard yardstick for US shares and one of the indices most widely tracked by index funds worldwide. It is not the whole US market: smaller companies are left out. Its market-value weighting also means it can become concentrated when a handful of very large companies dominate, so an S&P 500 fund may be less diversified than the number 500 suggests. For investors outside the US, returns are also affected by movements in the dollar against their own currency.