Indexology^® Blog

Explore whether the S&P 500’s positive performance in 2025 may signal it’s time to look at equities elsewhere. We review recent U.S. and global market dynamics, highlight the long-term success of legends like Warren Buffett and the S&P 500 Dividend Aristocrats and examine the challenge of consistently outperforming the market. How many active funds do you think stayed above average over the past five years? Stay tuned to find out!

Launched on May 18, 1995, the S&P Composite 1500^® (the S&P 1500™) celebrated its 30^th anniversary yesterday. Designed for investors looking to replicate the performance of the U.S. equity market or to benchmark against a representative universe of tradeable stocks, the S&P 1500 combines the S&P 500^®, S&P MidCap 400^® and S&P SmallCap 600^® indices in proportion to their free-float market capitalizations. Exhibit 1 shows that the S&P 1500 covered more than 95% of the U.S. equity market’s USD 53.7 trillion float market capitalization—as measured by the S&P Total Market Index—at the end of April 2025.

Despite majority representation from large-cap companies—S&P 500 companies accounted for USD 47.2 trillion of the S&P 1500’s USD 51.1 trillion index market capitalization at the end of April, and an average of 89% of the S&P 1500’s weight at the end of each year between 1995 and 2024—market participants may have found it beneficial to incorporate smaller U.S. equity size segments.

Indeed, mid- and small-cap U.S. equities have distinct characteristics and market participants risk overlooking a sizeable portion of the global equity opportunity set by ignoring them: smaller U.S. size segments are as large as some countries’ entire equity markets. Exhibit 2 shows that the S&P 1500 benefited from its exposure to smaller size segments, slightly outperforming the S&P 500 over the past 30 years.

An important observation about the S&P 1500 is that is it not simply the largest 1500 U.S.-domiciled companies since index additions must meet various criteria. Exhibit 3 summarizes many of the criteria that are outlined in the S&P U.S. Indices Methodology. For example—and unlike many other U.S. equity indices—the S&P 1500 and its component indices utilize an earnings screen whereby new additions must have a history of positive earnings before they can be considered eligible for addition to the S&P 500, S&P 400^® or S&P 600^®.

One way to see the impact of the S&P 1500’s index construction is to compare the characteristics of S&P 1500 stocks with “Extra 1500” stocks. The latter group consists of the largest 1,500 U.S. stocks that were not members of the S&P 1500 at the end of April 2025. Exhibit 4 points to the S&P 1500 being an efficient measure of the U.S. equity market: the S&P 1500 avoided many of the less liquid, lower priced and lower quality stocks in the “Extra 1500.”

The S&P 1500 Index’s 30^th anniversary offers a chance to reflect on its performance, characteristics and potential applications. Here’s to the next 30 years!

After the volatility witnessed in early April, U.S. equities have staged a remarkable recovery over the past couple of weeks, with the S&P 500^® up 1% YTD through May 15, 2025, reversing its 15% YTD decline through April 8, 2025. Thanks to optimism surrounding easing tariff tensions and strong Big Tech earnings, mega caps have rebounded, with the S&P 500 Top 50 outperforming The 500™ by 1.2% QTD.

The outperformance of larger stocks has been driven by the Information Technology (IT) sector, with the S&P 500 Information Technology up 14% QTD. Exhibit 1 illustrates that the disparity in performance between IT and the rest of the market has narrowed since the early April turmoil, as stocks from the sector have strengthened. The S&P 500 Information Technology has underperformed The 500 by 2% while the S&P 500 Ex-Information Technology has outperformed by 0.8% YTD.

Meanwhile, the S&P 500 Equal Weight Index, which has a smaller-cap bias by design, has underperformed The 500 by 3% so far this quarter. Exhibit 2 shows that the outperformance of mega caps and underperformance of equal weight has been a notable reversal compared to Q1 2025, which was characterized by mega-cap underperformance and equal weight’s outperformance.

Combining a size perspective with a sector perspective through a sector attribution of the S&P 500 Equal Weight Index versus the S&P 500 can help to understand the shifts in the equal weight index’s relative performance seen in Exhibit 2. Exhibit 3 illustrates that cross-sector weighting, or sector weight differences, were the key driver of the index’s outperformance in Q1 2025, stemming primarily from the underweight to IT. In contrast, so far this quarter, the underweight to IT has turned from a performance contributor to a performance detractor, consistent with the sector’s recent strong performance.

Although IT has made a significant comeback, the sector’s diversification properties have diminished. In Exhibit 4, we calculate the spread in trailing 12-month volatility between the S&P 500 versus the S&P 500 Ex-Information Technology. When this spread is positive, the inclusion of the sector increases volatility in the benchmark; when negative, the sector acts as a diversifier. Note that the positive spread for IT has continued to increase, approaching levels last seen during the Tech bubble.

Zooming out, Exhibit 5 indicates that dispersion among S&P 500 sectors has trended upward since the start of the year. With a 24% QTD performance spread between the leading Information Technology and laggard Health Care sectors, sector allocation decisions may continue to be especially important.

How are financial advisors putting SPIVA data to work to help clients achieve their goals? S&P DJI’s Sue Lee joins Thriving Wealth’s John Cachia to dive into the most recent SPIVA Australia Scorecard and its practical applications for market participants.

By weighting the constituents of the S&P 500^® based on top-line revenue, the S&P 500 Revenue-Weighted Index offers an alternative to traditional benchmarks that are weighted by float market cap (FMC). This approach aims to better reflect the fundamental strength of each company, while offering better valuations and enhanced diversification. In this blog, we will analyze its methodology, examine short- and long-term performance, explore style tilts and assess diversification.

Year-to-Date Performance

So far this year, the S&P 500 Revenue-Weighted Index has outperformed The 500™ by more than 4.5% and surpassed the S&P 500 Equal Weight Index by more than 2.0% (see Exhibit 1).

Long-Term Performance

This recent outperformance is consistent with its historical track record. As shown in Exhibit 2, the S&P 500 Revenue-Weighted Index has outperformed both the S&P 500 and S&P 500 Equal Weight Index in terms of total return and risk-adjusted return over the long term, all while maintaining consistently lower volatility.

Upside Participation and Downside Protection

The historical capture ratios (Exhibit 2) show that the S&P 500 Revenue-Weighted Index has typically participated one-for-one in up markets,¹ while delivering significant outperformance during down markets. This aligns with the design of revenue-weighted indices, which tend to provide a closer reflection of the broader economy and avoid overweighting overvalued stocks.

Methodology

The S&P 500 Revenue-Weighted Index assigns weights to its constituents proportional to their revenues from the past four quarters. To provide broader coverage and reduce concentration risk, individual constituent weights are capped at 5%, and the index rebalances quarterly in March, June, September and December.

Weighting by revenue may better reflect the broader economy, as revenue is directly tied to economic activity. Additionally, revenue serves as a direct indicator of a company’s ability to generate income and is less susceptible to accounting manipulations.

Valuations

As illustrated in Exhibits 3a and 3b, the S&P 500 Revenue-Weighted Index generally exhibited better valuations than the S&P 500 Equal Weighted Index and The 500.²

Sector Weights

As shown in Exhibit 4, revenue weighting has often resulted in more stable sector weights (as measured by lower standard deviation) compared to the weighting scheme driven by price, as revenues tend to be relatively stable. Moreover, the S&P 500 Revenue-Weighted Index held the largest weight in Consumer Discretionary, while Information Technology was the largest sector in The 500.

Diversification

When examining individual stocks, the S&P 500 Revenue-Weighted Index demonstrated greater diversification than The 500, featuring a lower max stock weight and a higher effective number of stocks (see Exhibit 5).

Conclusion

The S&P 500 Revenue-Weight Index presents an alternative to traditional market cap-weighted benchmarks, emphasizing fundamentally strong companies based on revenue. It has consistently delivered robust total returns and risk-adjusted outperformance over both the short and long term. In comparison to FMC-weighted benchmarks, it has historically offered greater value tilt, reduced concentration risk and more stable sector weights.

¹ The market is defined as the monthly performance of the underlying benchmark (i.e., S&P 500) from Dec. 31, 1994, to March 31, 2025.

² Historic price/book ratios show a similar trend to price/earnings and price/sales ratios.

³ Effective number of stocks is the inverse of the Herfindahl-Hirschman Index (HHI), which is the sum of squared stock weights for each index in each period.