Indexology^® Blog

Last August, we published a blog highlighting the impressive H1 2025 performance of the S&P World Ex-U.S. Momentum Index compared to both its benchmark universe and the S&P 500^®. This strong momentum persisted through the remainder of 2025, with the S&P World Ex-U.S. Momentum Index closing the year with an impressive 43.22% gain (see Exhibit 1).

For international market participants, this development may seem long awaited, as the S&P World Ex-U.S. Index outperformed The 500^® by 14.68%—its largest margin in more than 30 years, surpassing every other year since 1993’s 20.51% outperformance. Furthermore, the S&P World Ex-U.S. Momentum Index delivered a 25.44% outperformance over The 500, marking its strongest result since 1998, when it achieved an outperformance of 27.66%.

In addition to updated performance figures, this blog will present sector and geographic weights as of Dec. 31, 2025, along with a brief overview of the index methodology.

Index Methodology

Exhibit 2 provides a refresher on the index methodology. In short, the index selects constituents from developed markets (excluding the U.S. and South Korea) based on 12-month risk-adjusted price momentum, omitting the most recent period to reduce short-term reversal effects.

Performance Comparison

The S&P World Ex-U.S. Momentum Index consistently outperformed its benchmark across every back-tested period since Dec. 31, 1994, while also showing higher risk-adjusted returns and downside capture relative to the S&P World Ex-U.S. Index (see Exhibit 3).

Exhibit 4 highlights the S&P World Ex-U.S. Momentum Index’s strong and consistent outperformance, surpassing its benchmark universe in over 62% of rolling three-year periods, with a maximum outperformance of 110% and a minimum underperformance of just 17%.

Sector Weight Analysis

As of Dec. 31, 2025, the S&P World Ex-U.S. Momentum Index continued to show a significant overweight in the Financials sector, resulting in slight underweights across most other sectors (see Exhibit 5). As illustrated in Exhibit 6, the sector weights are highly dynamic and tend to shift rapidly in response to changes in the momentum signal, rather than exhibiting a consistent bias toward specific sectors.

Region Weight Analysis

As of Dec. 31, 2025, the S&P World Ex-U.S. Momentum Index maintained a significant underweight position in Japan. The Canadian market currently holds both the largest overweight at 7.2% and the highest absolute weight at 18.9% within the S&P World Ex-U.S. Momentum Index. Much like the full-period sector comparison, the index generally does not display consistent biases toward specific countries over the long term.

Conclusion

The S&P World Ex-U.S. Index’s strongest outperformance versus the S&P 500 in over three decades was likely welcome news for international market participants. Against this backdrop, the S&P World Ex-U.S. Momentum Index delivered a remarkable performance of 43.32% 2025—its strongest calendar year performance since 1999. The S&P World Ex-U.S. Momentum Index’s 2025 results highlight the recent strength of the momentum factor across developed markets internationally.

How are new index approaches to mega caps helping to address concentration concerns and increase sector diversification? S&P DJI’s Hamish Preston and DWS’s David Bianco take a closer look at the S&P 100 Ex-Top 20 Select Index to explore the role of the “next 80” in the global equity opportunity set.   

U.S. equity markets have been whipsawed in the past few days, with initial optimism surrounding Big Tech earnings powering the S&P 500^® to an intraday high, and subsequent disappointing reactions to earnings coupled with the Fed’s decision to hold rates steady leading to a sharp retreat for The 500^®.

The pullback in Tech and the rotation toward small-cap stocks have been major market themes that have characterized the start of 2026.¹ The S&P SmallCap 600^® has outperformed The 500^® by 4% month-to-date as of Jan. 28, 2026, propelled by strong economic growth and robust corporate earnings.

As the breadth of returns has started to expand beyond mega-cap leaders, it may be an interesting time to examine equal-weight strategies, which by design have a small-cap bias and offer a more broad-based footprint than their capitalization-weighted peers.

Exhibit 1 shows that the S&P 500 Equal Weight Index outperformed the capitalization-weighted S&P 500 by 3% over the three months ending Jan. 28, 2026, coinciding with a decline in market concentration, with the aggregate weight of The 500’s top 10 companies falling below 40% since Q3 2025.

Notably, market participation has expanded beyond the mega-cap names. Following the peak in concentration in early November, the sources of the S&P 500’s performance have shifted across the capitalization spectrum. Exhibit 2 shows that while the top 100 companies accounted for the majority of the index’s gains for most of 2025, mega-cap weakness has caused their contribution to decline considerably since then, as outperformance has shifted to the bottom 400 companies.

Sector-level dynamics further explain this shift. In a Brinson sector attribution of the S&P 500 Equal Weight Index versus the S&P 500, Exhibit 3 shows that the S&P 500 Equal Weight Index’s underperformance for most of last year and its subsequent outperformance relative to the S&P 500 was largely driven by an underweight in Information Technology, consistent with the sector’s recent travails.

The S&P 500 Equal Weight Index’s factor profile has also played a supportive role. In addition to its small-cap bias, the S&P 500 Equal Weight Index has historically maintained a persistent tilt toward value and away from momentum, as the strategy, by definition, regularly rebalances away from relative winners and toward relative losers. These factors have benefited from improving market breadth and a rotation away from large-cap growth- and momentum-oriented stocks. Notably, the S&P 500 Value has outperformed S&P 500 Growth, and the S&P 500 Momentum Index has underperformed The 500 by 2% so far in January.

Exhibit 4 shows that periods of extreme relative S&P 500 Momentum Index outperformance have often been followed by outperformance in the S&P 500 Equal Weight Index, reflecting the naturally inverse relationship between the two approaches. This historical trend may be particularly relevant following the S&P 500 Momentum Index’s stellar outperformance in 2025.

If the headwinds facing Big Tech continue to worsen, the increase in market breadth and the rotation away from large caps may potentially persist. We do know that periods following extreme market concentration have historically coincided with the outperformance of the S&P 500 Equal Weight Index, and it may be useful for market participants to understand the sources and drivers of the strategy’s relative performance.

¹ The Wall Street Journal, “Small Stocks Finish Week at Records,” Jan. 16, 2026. 

The late-cycle economy is defined as the final phase of the macroeconomic cycle when economic activity hits its peak. The period is characterized by high but slowing growth, rising inflation that may affect profit generation, a tight labor market and volatility in interest rates.

Given these conditions, many market participants are considering how best to approach diversification to navigate an environment characterized by heightened market risk and uncertainty around future corporate profits and economic growth. With the S&P 500^® currently highly concentrated in a few sectors and stocks, addressing these challenges can involve a range of strategies—from broad asset allocation to more selective stock picking.

In this blog, we examine the S&P 500 Market Leaders Index as a potential strategic solution. Launched on Nov. 11, 2024, this index tracks leading companies within The 500^® as identified by their consistently high free cash flow margins, strong returns on invested capital and significant market share.

In 2025, The 500 recorded strong performance, driven by ongoing momentum. The S&P 500 Market Leaders Index also performed well compared to its benchmark. Over the long-term back-tested period, the S&P 500 Market Leaders Index delivered strong results, outperforming The 500 both in absolute terms and on a risk-adjusted basis (see Exhibit 1).

Additionally, the index has historically outperformed The 500 during most market downturns while showing lower volatility and a reduced downside capture ratio. This performance can be especially notable in the late stages of the economic cycle, when markets are more prone to stress events.

Fundamentally, the S&P 500 Market Leaders Index is most similar to a traditional quality strategy—tracking constituents that tend to demonstrate higher margins, strong returns on capital and lower leverage (see Exhibit 2). The strategy’s significant emphasis on higher profitability may render it more defensive than other quality strategies because the most profitable stocks typically have a larger “margin of safety,” allowing them to withstand economic shocks or slowing growth while remaining profitable.

The focus on high market share bolsters the index’s overall defensive characteristics, as companies with substantial market share typically benefit from competitive advantages that establish a defensive “moat” around their business models. Tangible benefits of a defensive moat may include pricing power (allowing higher cost inflation to be passed through to pricing), lower sourcing costs and the ability to leverage economies of scale or network effects to sustain revenue, thereby enabling companies to remain profitable throughout the business cycle.

Quality characteristics may resonate more in some sectors than others. Exhibit 3 shows that historically the highest overweight has been in the Information Technology and Consumer Staples sectors. However, the current weight in Financials is much higher than it has been historically, reducing the underweight in the sector.

The S&P 500 Market Leaders Index includes 5 of the Magnificent 7 companies (it does not contain Amazon or Tesla). These companies are distributed across Information Technology, Consumer Services and Communication Services. The total weight of these constituents in the index is 22.7%, however the S&P 500 benchmark universe holds a 34.9% weight.

The S&P 500 Market Leaders Index’s strong outperformance in periods of economic stress is empirically demonstrated in the back-tested period, where the index outperformed The 500 across all macroeconomic environments—most significantly in falling growth environments.

The S&P 500 Market Leaders Index may provide a source of diversification relative to the benchmark universe, potentially providing a framework for navigating late-cycle market conditions.

2025 Market Performance

Markets delivered a strong year in 2025 across most parts of the globe. The S&P World Index was up 23%, while the S&P 500^® was up 18% and posted 39 record closing highs during the year, despite persistent geopolitical, tariff and inflation pressure.

Sector leadership in the U.S. was taken by Communication Services and Information Technology, consistent with the market narrative dominated by continued investor focus on AI and digital infrastructure. The “AI story” was not uniform across tech though—gains remained concentrated in hardware, data centers and computers, while software lagged.

Fixed income indices generally delivered positive performance globally in 2025. Monetary policy in the U.S. moved onto a rate-cutting path in the second half of the year. Federal Reserve rate cuts pushed short-term Treasury yields lower, with credit outperforming government bonds.

Debt markets were increasingly tapped to finance structural investment themes, particularly AI-related infrastructure. Issuance linked to data centers and AI projects continued to rise.

Commodity performance in 2025 was led by Metals, while Energy was weak. Precious Metals performed particularly well, with Gold and Silver reaching multiple record highs over the year. Industrial Metals also strengthened, benefiting from supply constraints and rising structural demand linked to higher demand for electricity and growing power needs from data centers and AI infrastructure. In contrast, Crude Oil prices generally declined in 2025 because global supply exceeded demand.

Leading Thematic Performers in 2025

The strongest-performing themes in 2025 from our S&P Thematics Dashboard were generally supported by tangible, near-term investment.

Precious Metals led the year. Silver (up 132%) and Gold (up 106%) stood out as macro uncertainty and ongoing geopolitical tensions sustained demand for real assets. Central bank buying and constrained supply¹ added fuel to the movement.

We also saw strength across the broad materials complex. Metal & Mineral Mining (up 95%) and industrial metals such as Copper (up 75%), Nickel (up 60%) and Aluminum (up 47%) were supported by power-grid expansion tied to higher electricity demand and advanced manufacturing buildouts.

Technology leadership was driven by the physical infrastructure linked to AI, while Software underperformed. Telecommunications Satellites (up 77%), Optical Communications (up 73%) and Data Centers & High-Performance Computing (up 71%) benefitted from the need to supply power and expand network capacity. As questions around AI monetization grew louder, investors gravitated toward areas where demand was tangible and near-term.

Defense-linked themes were another clear area of strength. Weapons (up 45%), Defense Technology (up 44%), Aerospace (up 42%) and Aerospace & Science Satellites (up 74%) advanced on the back of sustained geopolitical tensions and rising defense budgets. Also, adjacent themes like Space saw strong momentum in 2025, with the S&P Kensho Global Space Index up 53%. The index has approximately 58% of its constituents classified as Aerospace & Defense.

Quantum Technology in 2025

Quantum Technology deserves special mention. After posting triple-digit gains in the first half of the year, the theme ended 2025 up a still-impressive 64%. In 2025, global quantum technology-linked ETFs reached approximately USD 4.3 billion in AUM, adding to the momentum in the theme.

Where Themes Struggled

Underperformance in 2025 was mostly driven by AI- and automation-related initiatives and a corporate focus on protecting margins. Staffing Services, Human Resources and Business Consultancy were down 19%, 17% and 14%, respectively.

Discretionary spending themes also had a tough year. Restaurants, Bars & Cafes (-8%), Alcoholic Beverages (-11%) and Packaged & Processed Foods (-10%) struggled with uneven real income growth across income cohorts and ongoing margin pressure. Consumer Retail also lagged, delivering a modest 3% return, as selective consumer spending continued to weigh on volumes.

Themes Carrying Forward into 2026

Market attention entering 2026 remains focused on areas where there is demand.

• Electricity usage linked to AI demand: Rapid data center expansion continues to strain power availability, keeping electricity and power infrastructure in focus.
• AI adoption moving into real-world applications: Interest is moving toward practical deployment. Healthcare, robotics and autonomous vehicles are gaining traction as use cases move from concept toward early implementation. Momentum has been particularly notable in parts of Asia.
• Blockchain applications beyond cryptocurrency: Regulatory progress and rising institutional engagement have directed attention toward stablecoins and tokenization. Banks and corporations increasingly use blockchain to modernize payments and broaden financial infrastructure.

¹ Thukral, Naveen and Lucas Liew. “Silver shines in 2025 global market spotlight as softs, oil lag.” Reuters. Dec. 31, 2025.