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The Standard & Poor’s 500 index is one of the most closely watched share indexes in the world. It tracks the share price performance of the 500 biggest listed companies in the US and is meant to gauge the overall performance of US stocks, unlike the Dow Jones Industrial Average, which covers just companies listed in New York.

Why is it important?

In a world where IT stocks like Amazon and Apple have become increasingly important, simply tracking New York Stock Exchange shares is a less relevant measure of US market performance. The S&P 500 is considered to cover over 80% of the total US stock market capitalisation. Alongside Apple, most of the household name US titans are represented in the index, including Exxon, Johnson & Johnson, General Electric and AT&T. For traders and investors who simply want to track the overall performance of US stocks, there is no better measure.

The S&P 500 also measures the cumulative, float-adjusted market capitalisation of the 500 biggest American companies, rather than just their prices. Traders see it as a better measure of the size and health of actively traded US companies.

Which ETFs track the SPDR?

The S&P 500 was naturally the first index used by the exchange traded funds industry. The first successful effort to launch an ETF based on the index came from State Street, the US bank, in 1993, when it launched the Spider – a nickname that stems from its stock market acronym SPDR. This was the first ETF to track the performance of the S&P 500 on a daily basis. Since then, close competitors like iShares and Vanguard have both launched an SPDR ETF. All three ETFs now account for billions of dollars and are very liquid, with a very high daily turnover of units in these funds.

Non-US investors can also buy a locally listed SPDR ETF – for example, UK-based investors have S&P 500 trackers from the likes of Vanguard and db x-trackers. Check first with your local stock exchange if you live outside the United States.

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Please note this article does not constitute investment advice. Investors are encouraged to do their own research beforehand or consult a professional advisor.

Stuart Fieldhouse

Stuart Fieldhouse

Stuart Fieldhouse has spent 25 years in journalism and marketing, including as a wealth management editor for the Financial Times group, covering capital markets and international private banking, and as an investment banking correspondent for Euromoney in Hong Kong. He was the founder editor of The Hedge Fund Journal.

Stuart has worked at CMC Markets, supporting the re-launch of its global financial spread betting and CFD trading platforms. He is also the author of two books on trading, published by Financial Times Pearson. Based in The Armchair Trader’s London office, Stuart continues to advise fund managers, private banks, family offices and other financial institutions.

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