Indexology^® Blog

While headline returns often steal the spotlight, the path to those returns can be equally important—especially for those seeking to weather the market’s ups and downs over the long term. This underscores what makes the S&P 500^® Quality Index particularly interesting: it hasn’t just outperformed the S&P 500 over the long term, but it has done so with lower risk, greater consistency and resilience during periods of market stress. Much of S&P 500 Quality Index’s outperformance has come from its ability to participate in most of the S&P 500’s upside while limiting losses during market downturns. The first half of 2026 showcases this well: the S&P 500 Quality Index posted 20.98%, more than twice the S&P 500’s 10.21%, driven in part by the S&P 500 Quality Index posting a gain in Q1 2026 while the S&P 500 fell 4.33% (see Exhibit 1).

In addition to reviewing historical performance, this blog will highlight the S&P 500 Quality Index’s performance profile—featuring its asymmetric capture ratios, robust hit rates and notable outperformance during “risk-off” economic periods.

Performance

For more than three decades—including both live and back-tested performance—the S&P 500 Quality Index has outperformed the S&P 500 on a nominal basis by an annualized average of 285 bps (see Exhibit 2). Notably, its 14.13% annualized performance exceeded its volatility of 14.11%, resulting in a risk-adjusted ratio of 1.00—33% higher than the S&P 500’s already strong 0.75.

Moreover, while the S&P 500 Quality Index outperformed the S&P 500 in nominal terms across every period shown, it’s notable that this was accomplished with lower volatility and a smaller maximum drawdown over the full period. Importantly, the outperformance persisted during the live period. Since its launch on July 8, 2014, the S&P 500 Quality Index has outpaced the S&P 500 by 35 bps per year (see Exhibit 2), while also exhibiting lower annualized volatility (14.34% versus 14.85%).

As mentioned earlier, a key characteristic of the S&P 500 Quality Index has historically been its asymmetric capture ratios. With an upside capture of 96.6, the index has participated in nearly all of the S&P 500’s upside, while its 78.2 downside capture means that it has tended to provide significant protection during market declines, historically.

Another key characteristic of the S&P 500 Quality Index has been its consistent outperformance, demonstrated by its hit rate—the percentage of rolling periods during which it outperformed the S&P 500. As shown in Exhibit 4, the S&P 500 Quality Index outperformed the S&P 500 in 57% of one-month rolling periods, 61% of six-month rolling periods, 65% of one-year rolling periods, 75% of three-year rolling periods and 75% of five-year rolling periods.

The S&P 500 Quality Index’s unique performance profile may best be highlighted in Exhibit 5. In “risk-on” environments with rising growth, the index typically matches or slightly underperforms the S&P 500. However, during “risk-off” periods marked by falling growth, the S&P 500 Quality Index provides crucial outperformance—averaging 0.21% when both growth and inflation are declining, and 0.36% when growth is falling but inflation is rising.

Conclusion

The S&P 500 Quality Index’s performance in the first half of 2026 exemplifies its historical strength, delivering outperformance through downside protection in Q1 and exceeding the S&P 500’s gain in Q2. However, its long-term outperformance—both absolute and risk-adjusted—is only part of the story; equally important are its lower risk—reflected in lower volatility, drawdowns and capture ratios—consistency and resilience during past periods of economic stress. It’s the distinctive combination of these attributes that sets the S&P 500 Quality Index apart.

Private wealth managers occupy an important position between public markets and end-investor portfolios. Their views can offer useful context on how market narratives are translating into allocation preferences, risk appetite and implementation choices. ARC Research,¹ now part of S&P Dow Jones Indices, tracks these views through its quarterly Market Sentiment Survey. In its 63^rd edition, the most recent survey reflects firms’ 12‑month outlook across major asset classes and implementation choices, offering insights into how private wealth managers are thinking about market exposure, risk budgeting and implementation choices.

Sentiment toward cash and equities increased at the expense of bonds and alternatives while, at the headline level, respondents remained most constructive on equities.

Beneath the Headline Results: Sectors, Bonds, Inflation and Alternatives

Additional highlights from the survey of particular relevance for CIOs include the following.

• Equity Sectors: Health Care and Energy (which were previously the most supported) saw declining support, while Information Technology and Consumer Discretionary (both had been exposed to significant mega-cap growth) garnered support. Industrials saw a notable gain in net sentiment.
• Fixed Income: Respondents were most negative on conventional government bonds (net sentiment was cited at -24 in the commentary). In contrast, sentiment regarding the classic route for inflation protection, index-linked bonds, improved materially.
• Alternatives/Real Assets: Hard commodities recorded the strongest support among sub-asset classes (net sentiment was referenced at 75), while gold saw a notable decline in net sentiment (down 20 points to 18).

Community Question

In addition to the main survey, we also ask a “community question.” This quarter, the focus was on portfolio implementation across asset classes, and the results for equities are highlighted in Exhibit 2.

The implementation results point to a continued shift toward vehicle-led portfolio construction, with passive and active building blocks now firmly embedded in how many firms access public markets—particularly in equities. Direct holdings remain a minority approach across most asset classes.

Exhibit 3 shows the reasons respondents cited for using passive allocations. Cost remains relevant, but the responses also point to diversification- and performance-related considerations.

This mix is consistent with passive vehicles such as index funds and ETFs being increasingly used as strategic “default” exposures, although a range of other use cases, including short-term tactical or liquidity needs, are likely to remain well represented. In this sense, the responses show some similarities with the patterns observed among some of the largest U.S. asset owners, as a recent post has highlighted.

How to Access the Full Report

The full survey includes the detail behind these headlines, including the full regional, sector and currency cuts and conviction shifts versus prior periods. Access to the full report is only for investment managers who complete the survey. If you are an investment manager and would like to be included in future surveys, or if you are interested in becoming a contributor to the ARC Wealth Indices, find out more on our website. Please note that survey results reflect respondent opinions at the time of the survey and positioning expectations, not investment advice.

¹ ARC Research, now part of S&P Dow Jones Indices, produces the ARC Wealth Indices: a range of peer benchmarks built from real-world, net-of-fees discretionary portfolio outcomes, grouped by realized risk. They provide wealth firms and oversight stakeholders a practical, outcome-focused reference point for governance, performance explanation and peer comparison.

What’s driving growth in ETF usage among insurers to all–time highs? S&P DJI’s Anu Ganti and Nick Didio share key takeaways across asset class, company size and geography from their latest research, “ETFs in Insurance General Accounts – 2026.” 

Global equities showed solid gains in the first half of 2026, supported by strong earnings in semiconductor-related industries. Conventional benchmarks rose across regions, with both global and developed markets posting double-digit gains, while emerging markets advanced at a slower pace, partly reflecting U.S. dollar strength. MENA equities continued to lag, weighed down by geopolitical tensions (see Exhibit 1).

Shariah-compliant equities outperformed conventional benchmarks across most major regions. The S&P Global BMI Shariah rose 15.3%, outperforming its benchmark, the S&P Global BMI, by 3.5%, while the Dow Jones Islamic Market (DJIM) World Index outperformed the Dow Jones Global Index by 2.9%. In developed markets, Shariah indices also modestly outpaced conventional peers, while the most pronounced gains were in emerging markets, where excess performance reached 7.0%. The MENA region remained the exception, showing modest underperformance (see Exhibit 1). See the Q2 2026 S&P Shariah and Dow Jones Islamic Market Indices Scorecard for more performance details.

Drivers of Shariah Index Performance in H1 2026

Sector positioning was a key driver of relative performance (see Exhibit 2). Information Technology—accounting for over 45% of the S&P Global BMI Shariah—rose 30.9% and contributed more than 12.2% to the index’s overall performance. Communication Services also supported relative gains, benefiting from stronger performance differentials versus conventional counterparts.

Conversely, structural underweights created headwinds. Limited weight in Financials and Utilities detracted 1.0% and 0.3% from excess performance, respectively, due to both underperformance versus conventional counterparts and lower weights.

Global Sukuk Posted Modest Gains

In fixed income, global markets experienced increased volatility amid sharp moves in oil prices and related uncertainties around inflation and policy rates. Investment grade bonds and sukuk performed modestly, with the iBoxx $ Overall Index and Dow Jones Sukuk Index (ex-Reinvestment) rising 0.6% and 0.7%, respectively. Yield levels remained comparable at around 5%, with sukuk offering higher spreads but shorter duration profiles (see Exhibit 3).

This article was first published in IFN Volume 23 Issue 29 dated July 22, 2026.

This content may be AI-assisted and is composed, reviewed, edited, and approved by S&P Global.

The first half of 2026 was notable for U.S. equity markets¹ and was characterized by sharp sector performance reversals, particularly in S&P 500^® Information Technology and S&P 500 Energy. Both sectors were up 20% YTD through Q2,² but they took very different paths to get there.

During the first quarter, Energy stocks had an outsized effect on the broader market as oil supply shortages, fueled by the war in Iran, rippled through supply chains. This pushed the Energy Select Sector up 38%, while the Technology Select Sector declined 8%. The tide turned in Q2 when enthusiasm surrounding AI companies and their related dependencies sparked a major turnaround in the Technology sector, sending the Technology Select Sector up 43%, while the Energy Select Sector fell 13% due to retreating oil prices and easing geopolitical concerns.

Looking across the pond, similar trends were observed in Europe. The S&P Europe 350 – Energy was up 40% in USD terms in Q1 while the S&P Europe 350 – Information Technology rose 42% in Q2.

Despite their similar sector co-movements in the short term, the historical outperformance of S&P 500 compared to the S&P Europe 350³ highlights the relevance of U.S. equities for European market participants (see Exhibit 2).

Adopting a sectoral perspective can help explain the long-term outperformance of the S&P 500 versus the S&P Europe 350. Exhibit 3 shows that the S&P 500 is concentrated in Information Technology, while the S&P Europe 350 has a greater weight in Financials and Industrials.

Another explanation for the S&P 500’s historical outperformance is its comparatively stronger within-sector performance. In fact, since 2020, 9 of the 11 GICS^® sectors in the S&P 500 outperformed their European peers.

Notably, Exhibit 5 shows that the overweight to Information Technology and the outperformance of stocks within the sector accounted for a large portion of the S&P 500’s outperformance versus the S&P Europe 350.

Recently, heightened geopolitical concerns and fluctuating oil prices have put the Energy sector back in the spotlight, while recent AI-related jitters have caused a pullback in Information Technology in both the U.S. and Europe. While we don’t know if another reversal⁴ is in order, evaluating the U.S. market through a sectoral perspective offers important context for European market participants.

¹ For more information, see our U.S. Dashboard.

² For more information, see our U.S. Sector Dashboard.

³ Tim Edwards et al., “Why Does The S&P 500 Matter to the U.K.?” S&P Dow Jones Indices LLC., Jan 17, 2023.

⁴ Anu Ganti, “Regimes, Reversals and Risk”, S&P Dow Jones Indices LLC., July 9, 2026.