The Standard & Poor’s 500 Index (S&P 500) is an index of 500 of the largest U.S. companies, listed on the New York Stock Exchange or NASDAQ, selected by the Standard & Poor’s Index Committee based on market capitalization. The S&P 500 Index is a widely recognized barometer of the U.S. equity market. S&P 500 Index funds allow investors to establish a core allocation in large-cap U.S. equities, which have been advised by one of the most iconic American investors, Warren Buffet, also known as the Oracle of Omaha. S&P 500 Index funds seek to replicate the performance of the benchmark index by investing in S&P 500 constituents with similar weights. These funds employ a passive or indexing investment strategy and invest all or a substantial amount of their total net assets in common stocks included in the benchmark index.
Vanguard 500 Index Fund Investor Shares
The Vanguard 500 Index Fund Investor Shares seeks to provide investment results corresponding to the price and yield performance of the S&P 500 Index, its benchmark index, with a high degree of positive correlation. VFINX was issued by Vanguard on Aug. 31, 1976, and has generated an average annual return of 10.99% since its inception, as of June 30, 2015. VFINX is managed by the Vanguard Equity Investment Group and charges an annual expense ratio of 0.17%, which is 83% lower than the average expense ratio of mutual funds with similar holdings.
To achieve its investment objective, VFINX implements an indexing strategy and invests nearly all of its total assets in stocks included in the S&P 500 Index, with approximately the same proportions as the weightings in the index.
As of Aug. 31, 2015, the Vanguard 500 Index Fund has total net assets of $204.6 billion, and the investor share class has total net assets of $25.8 billion. VFINX has a price-to-earnings ratio (P/E ratio) of 19.4; a price-to-book ratio (P/B ratio) of 2.7; an earnings growth rate of 9.9%; and a return on equity of 18.4%.
Based on trailing 15-year data, VFINX has an R-squared of 100%; a correlation coefficient of 1; a beta of 1; a Sharpe ratio of 0.20; and a Treynor ratio of 1.98. VFINX’s R-squared and correlation coefficient indicate it tracked the S&P 500 Index with minimal tracking error, which was mainly attributed to its fees.
Like most S&P 500 Index funds, VFINX is best suited for long-term investors with a moderate to high degree of risk tolerance seeking exposure to the U.S. large-cap equities market. Since VFINX has a minuscule tracking error and a low expense ratio, it is an attractive core holding for an equity portfolio.
Schwab S&P 500 Index Fund
The Schwab S&P 500 Index Fund was issued on May 19, 1997, by The Charles Schwab Corporation. SWPPX is advised and managed by Charles Schwab Investment Management, Inc., and charges an expense ratio of 0.09%, while the average expense ratio of S&P 500 Index funds is 1.09%.
SWPPX is a mutual fund that seeks to provide investment results corresponding to the total return of the S&P 500 Index. To achieve its investment goal, SWPPX typically invests at least 80% of its total net assets in stocks comprising the S&P 500 Index. Additionally, SWPPX generally gives the same weights to these stocks as the index.
As of June 30, 2015, SWPPX has 506 holdings, which amount to $20.5 billion, and a portfolio turnover of 2%. As of Aug. 31, 2015, SWPPX has an R-squared of 99.99%; a correlation coefficient of approximately 1; a beta of 1; an alpha of -0.06; a Sharpe ratio of 0.21; and a Treynor ratio of 2.03.
SWPPX has a minimum initial investment of $100, which is attractive to the average retail investor. Additionally, its low expense ratio and minute tracking error provide an investment opportunity for long-term investors seeking exposure to S&P 500 constituents.
Fidelity Spartan 500 Index Investor Shares
Issued on Feb. 17, 1988, by Fidelity, the Fidelity Spartan 500 Index Investor Shares provides low-cost exposure to the U.S. large-cap equities market. FUSEX charges an annual net expense ratio of 0.095% and requires a minimum investment of $2,500. FUSEX is advised by Fidelity Management & Research Company and subadvised by Geode Capital Management, LLC.
To track the S&P 500 Index, FUSEX invests at least 80%, under normal market conditions, of its total net assets in common stocks comprising the index. FUSEX has historically tracked the index with a minimum degree of tracking error. Additionally, before fees and expenses, FUSEX has a perfectly positive correlation to the S&P 500 Index.
FUSEX serves as an alternative to VFINX and SWPPX, and is one of the top funds that offers exposure to a basket of common stocks included in the S&P 500 Index. FUSEX may serve as a core holding in a portfolio of U.S. equities. However, it is unsuitable for investors seeking exposure to the total stock market.
SPDR S&P 500 ETF
Based on trailing 15-year modern portfolio theory (MPT) statistics, SPY has an R-squared of 100%; a beta of 1; an alpha of -0.08; a Sharpe ratio of 0.21; a standard deviation, or volatility, of 15.03%; and a Treynor ratio of 2.02. According to these statistics, SPY has a perfect positive correlation and a similar level of volatility and return to the S&P 500 Index.
SPY is one of the world’s most recognized and liquid securities tracking the S&P 500 Index. As of Sept. 22, 2015, SPY has total net assets of $163.897 billion and a trailing three-month average daily volume of 145.588 million shares. SPY is best suited for investors seeking a low-cost exchange-traded fund to gain exposure to the U.S. large-cap equities market. Additionally, it is suitable for traders who wish to trade an S&P 500 Index fund on major stock exchanges throughout daily trading hours rather than buying or selling an S&P 500 Index mutual fund at the close of U.S. markets.
