Indexy a trhy
S&P 500: How It Was Created and Why It Is the World's Most Watched Index
Key takeaways
- The S&P 500 is not simply a list of the 500 largest companies — selection is carried out by a Standard and Poor's committee based on fixed criteria.
- The index is weighted by market capitalisation, so the largest companies like Apple or Microsoft have a significantly greater influence than smaller members.
- The index dates back to 1957, but its predecessors existed from 1923.
- For Czech investors, the most accessible route is an Irish UCITS ETF available on the Prague or foreign stock exchange.
- The S&P 500 is the primary benchmark, but it does not include small-cap companies or the rest of the world.
The S&P 500 is an equity index tracking the 500 largest publicly traded companies in the United States, weighted by their market capitalisation. It was created in 1957, but its roots go back to 1923, when Standard and Poor's began calculating the first version of its equity barometer.
How the index was created and who manages it
The S&P 500 is maintained by S&P Global, which determines the index's composition through a committee. The committee meets regularly and evaluates candidates. There is no automatic entry — a company must meet certain conditions: US domicile, market capitalisation above a specified threshold, a positive quarterly profit, sufficient share liquidity, and public trading. The committee also considers whether the company represents its sector of the economy.
This is a key difference from indices such as the Russell 1000 or Wilshire 5000, where selection is purely mechanical. The S&P 500 therefore incorporates an element of human judgement.
Weighting methodology: why Apple moves the index more than a small bank
The index uses market capitalisation weighting — specifically so-called float-adjusted capitalisation, meaning only the portion of shares actually available on the market. Shares held by founders or governments are not fully counted in the weight. As a result, the top ten companies account for approximately one third of the entire index. A change in Apple's share price therefore moves the index more noticeably than the same percentage change at a smaller company near the bottom of the list.
What the index covers and what it does not
The S&P 500 includes:
- approximately 80% of the total market capitalisation of the US equity market
- all sectors of the economy from technology to energy
- exclusively large companies — small and mid-cap businesses are excluded
It does not include US small-cap equities, international companies, or bonds. For a globally diversified portfolio the S&P 500 is therefore not sufficient on its own — that gap is addressed by, for example, MSCI World.
How to buy it as a Czech investor
The most direct route is via an Irish UCITS ETF (ISIN beginning with "IE"). The Irish domicile matters for dividend taxation — the fund pays a lower withholding tax on income than other European domiciles. More on why the Irish domicile matters. For a deeper look at how the S&P 500 works as an investment instrument, see co-je-sp500. This article focuses on history and methodology — the investment aspects and comparisons are covered in more detail there.
FAQ
When was the S&P 500 created?
The index in its current form with 500 companies was created on 4 March 1957. However, the Standard and Poor's predecessor had been calculating equity indices since 1923. Data has been back-calculated to 1928.
How does a company get into the S&P 500?
It must be domiciled in the US, have sufficient market capitalisation, show positive profit for the most recent quarter, and have liquid shares. The final decision is made by the committee — entry is not automatic and is not solely about size.
Why do large companies carry more weight?
The index weights companies by market capitalisation. The more valuable a company, the more it influences the movement of the index. The top ten companies account for approximately one third of the index, so heavyweights like Apple or Microsoft pull it more strongly.
How do I buy the S&P 500 as a Czech investor?
Through an Irish UCITS ETF, available at most European brokers. The Irish domicile means an ISIN starting with "IE" and favourable dividend taxation at fund level. Remember, this is my educational summary, not investment advice.