Indexology^® Blog

U.S. equities have staged a remarkable recovery in the past few months, shrugging off inflation concerns, trade tensions and geopolitical risks, all of which has culminated in multiple all-time highs. Meanwhile, the significant outperformance of the momentum factor, or the continued strength of winning stocks, coupled with the dominance of a few mega-cap companies, especially within the Technology sector, can lead to concentration, valuation and reversal concerns.

Illustrating these extended price and concentration trends, the left-hand side of Exhibit 1 shows that the S&P 500 Momentum Index’s cumulative relative outperformance has reached levels last seen during the height of the 90’s dot-com bubble, which was notably followed by a sharp reversal. The right-hand side of Exhibit 1 shows that the U.S. equity market is also unusually concentrated, as measured by the Herfindahl-Hirschman Index (HHI),¹ a widely used concentration measure.

The Tech sector has been a prominent showcase of these trends, currently making up 33% of the S&P 500^® and 22% of the S&P 500 Momentum Index’s weight. The S&P 500 Information Technology sector outperformed the S&P 500 by 13% in Q2, most recently capped by Nvidia’s milestone of becoming the first public company ever to reach a USD 4 trillion market capitalization.²

The Tech sector’s current adjusted HHI³ level of 9.3 indicates an extreme level of concentration for the sector compared to the long-term average of 5.2, consistent with what was observed for the broader market. As Exhibit 2 shows, when concentration has been relatively high in the past, it has subsequently tended to decline.

But for market participants seeking an index that measures Tech that simultaneously mitigates the concerns noted earlier, an equal-weight approach to large-cap Tech may be of particular interest. Exhibit 3 shows that the S&P 500 Equal Weight Information Technology Index, by rebalancing on a quarterly frequency, has a stronger tilt to small size, away from momentum and toward value compared to its cap-weighted peer (using the modified capitalization-weighted Technology Select Sector Index) relative to the S&P 500. These factor weights, while not static, are broadly consistent with the underlying S&P 500 Equal Weight Index’s factor profile, of which the smaller size and anti-momentum biases in particular have driven the index’s long-term outperformance.

The tendency of the momentum factor and Tech concentration to reverse may have important implications for the performance of equal-weight sector strategies. Exhibit 4 illustrates the relationship between the Tech sector’s adjusted HHI with the relative performance of the S&P 500 Equal Weight Information Technology Index compared with its cap-weighted counterpart. Although equal-weighted Tech has underperformed recently, typically, after peaks in concentration (such as during 1990, 1999 and 2002), the strategy has outperformed.

With Technology concentration at historically high levels along with broader momentum trends, it could be an interesting time to examine equal weighting within the sector as concentration and momentum have tended to mean-revert historically. Various index-weighting options are available for market participants to track specific market segments, and understanding concentration from a sector perspective may be critical to weighting these compositions appropriately.

The author would like to thank Nicholas Demers for his contributions to this post.

¹ https://fraser.stlouisfed.org/files/docs/publications/FRB/pages/1990-1994/33101_1990-1994.pdf

² https://www.reuters.com/business/finance/nvidias-4-trillion-milestone-caps-rise-stock-market-behemoth-2025-07-09/

³ In order to use the HHI to make comparisons within the Technology sector over time, we use an adjusted HHI, defined as the sector’s HHI divided by the HHI of an equal-weighted portfolio with the same number of stocks.

By aggregating a company’s dividends, net buybacks and net debt reduction, shareholder yield provides a comprehensive measure for identifying companies that return the most value to their shareholders. The S&P 500^® Resilient Shareholder Yield Index tracks 100 companies from the S&P 500 universe that exhibit high shareholder yields and strong fundamentals relative to their peers. The index was launched Dec. 2, 2024.

Methodology

The S&P 500 Resilient Shareholder Yield Index’s methodology begins with an inclusion criterion requiring companies to have a positive shareholder yield of 25% or less. This helps ensure that the index avoids companies with high yields that may indicate structural issues or financial weakness.

Subsequently, a composite z-score is calculated using four metrics: two quality indicators—return on equity (ROE) and free cash flow (FCF) to debt—and two metrics that assess the company’s ability to deliver consistent long-term shareholder returns: high shareholder yield and high capital return growth. The index weights its constituents based on their float market capitalization (FMC) multiplied by their shareholder yield.

Performance

Historical back-tested performance shows that the S&P 500 Resilient Shareholder Yield Index has outperformed its benchmark over the long term, posting a strong risk-adjusted return of 0.75 compared to 0.52 for the benchmark (see Exhibit 3). The index has historically demonstrated defensive characteristics, as evidenced by its reduced volatility and a lower downside capture ratio of 81.19%. Additionally, this back-tested data shows that the index has offered a higher dividend yield than the broader S&P 500 across the analyzed time horizon, further enhancing its appeal to market participants seeking resilient returns.

Fundamental Attributes:

The value and defensive focus of the S&P 500 Resilient Shareholder Yield Index is demonstrated via its historically higher-than-benchmark dividend yield and low valuation metrics. As of June 30, 2025, it also had higher ROE and return on invested capital (ROIC) metrics than the benchmark, demonstrating its quality aspect.

Sector Weights

The S&P 500 Resilient Shareholder Yield Index currently tilts toward Information Technology, Industrials, Communication Services and Health Care. However, the weights have transitioned over time; historically, there were much higher concentrations in the Consumer Staples and Consumer Discretionary sectors and lower weights in Financials and Industrials.

Interestingly, the largest underweight versus the benchmark is currently in Information Technology, at -14.3%. The highest overweight is in Energy, at 9.01% (see Exhibit 5). This is a function of both the selection metrics and the 4.5% stock weight cap, which reduces the weight of the larger companies.

Performance Resilience across Varying Macroeconomic Conditions

While historical back-testing demonstrates the index’s downside protection and defensiveness, an analysis was conducted to assess its performance across four distinct macroeconomic environments characterized by varying growth and inflation rates. The results show that the S&P 500 Resilient Shareholder Yield Index exhibited the most significant outperformance in the Falling Growth and Rising Inflation environment, achieving an average monthly excess return of 0.57%.

Conclusion

The S&P 500 Resilient Shareholder Yield Index selects constituents that exhibit quality attributes and strong financial metrics, enabling them to deliver robust shareholder returns across various macroeconomic environments. Historical back-testing reveals strong risk-adjusted returns, defensive characteristics and enhanced dividend yield, underscoring the index’s historical resilience.

¹   Free Cash Flow (FCF) is comprised of operating cash flow minus capital expenditure

²   Methodology is available at https://www.spglobal.com/spdji/en/documents/methodologies/methodology-sp-500-share-yield-indices.pdf

³ A Historical Perspective on Factor Index Performance across Macroeconomic Cycles – Education | S&P Dow Jones Indices

What sets the S&P World Index apart when it comes to tracking developed markets around the globe? Explore how extensive coverage, historical consistency, transparency and adaptability are helping global investors make more informed decisions as they seek to uncover opportunities and navigate risks across economic cycles. 

Given the increased interest in thematic strategies that measure both cutting-edge technologies and the broader forces shaping the global economy, we’re launching the S&P Thematics Dashboard—a monthly resource that highlights key economic and market indicators that help put the performance of thematic indices into perspective. With data created in collaboration with Theia Insights, the dashboard provides monthly performance insights on over 200 themes, grouped by their most relevant megatrends, regions, sectors and style factors. By presenting data through multiple lenses, the dashboard makes it easier to see how themes are shaping megatrends and influencing sector performance, helping investors better grasp the connections between today’s themes and the long-term forces driving markets.

One Dashboard, Many Perspectives

The S&P Thematics Dashboard is designed to serve a wide range of market participants, recognizing that different groups require unique perspectives when measuring financial markets. Through this dashboard, we aim to answer three key questions: What broad trends are gaining momentum? Which disruptive themes are attracting growing attention from the market? And what relevant factors may be influencing theme performance?

Organized into key sections, the dashboard helps connect the dots on what’s driving performance within the thematic market:

• U. S. Economic & Market Indicators: This section sets the macro and risk sentiment backdrop that is essential for understanding equity performance. Themes vary—from defensive to growth-oriented, domestic to global, and disruptive to mainstream. The macro and market indicators help identify how investor sentiment may impact different themes, positively or negatively.

• U.S. Market & GICS^® Sector Performance: This section offers a snapshot of GICS sector performance across S&P Composite 1500^® stocks. Since themes often align with GICS sector classifications, tracking sector dynamics provides important context—helping to identify whether a theme’s performance is driven by broader sector trends or by theme-specific factors.
• Theme Performance Split across Megatrends, Regions and Sectors: Themes are systematically categorized by their associated megatrend and sector, allowing for meaningful comparisons and providing a structure to understand performance of these 200+ themes. For each segment, the top and trailing three performing themes are displayed over multiple time periods. Breaking down thematic performance across these segments helps reveal regional leadership, sector-specific tailwinds and rotation patterns that might be hidden in aggregated returns.
• Factor Tilt Quadrants: To measure underlying style tilts, themes are positioned within a two-dimensional chart based on their size (e.g., small cap versus large cap; see Exhibit 2) and style (e.g., value versus growth) tilts. Each quadrant reflects a different combination of factor characteristics, offering a clear contrast in factor tilts across themes. Recognizing and identifying such tilts helps avoid unintended clustering—such as overweight to small-cap growth—and supports more balanced, diversified thematic views.

• Risk/Return Analytics: Performance is only part of the picture—understanding risk is equally critical. This section presents two scatter plots that evaluate themes through a risk-adjusted lens: one mapping return against volatility, and the other plotting return against maximum drawdown. These visuals provide a clear view of risk/return profiles across themes.
• S&P Thematic Indices & S&P Kensho New Economies Indices: The final section rounds out the thematic landscape by presenting the performance of S&P DJI’s flagship thematic indices. The S&P Thematic Indices track broad structural trends such as climate transition, the digital economy and infrastructure, while the S&P Kensho New Economies target innovation-led, high-growth themes like AI, robotics and space—the building blocks of the Fourth Industrial Revolution.

In summary, the newly launched S&P Thematics Dashboard is a multi-lens tool that brings together macro, sector and thematic data into one comprehensive document, allowing going beyond a bird’s eye view of the economy to a granular look at performance of specific investment themes.

The S&P 500^® GARP 100 Index, launched on Nov. 24, 2024, sits at the intersection of value and growth strategies. Its objective is to identify 100 constituents from the S&P 500 that exhibit strong growth while maintaining reasonable valuations and high quality attributes.

Methodology

The index employs a two-step selection process. First, it identifies the top 200 ranked constituents based on their Growth Score, which is derived from three-year earnings per share (EPS) and sales per share (SPS) growth rates. From this subset, the top 100 companies are selected using a composite score that integrates quality and value (QV) metrics.

Weighting within the index is determined by multiplying the Growth Score by each security’s free-float market capitalization (FMC).

Historical Back-Tested Performance Analysis

The historical back-tested performance of the S&P 500 GARP 100 Index shows significant outperformance, both in absolute and risk-adjusted terms, compared to its benchmark. The index exhibited an upside capture ratio of 108.53, highlighting its potential to benefit from rising markets. Conversely, a downside capture ratio of 94.31, along with a lower drawdown compared to the benchmark, underscores its moderate defensive characteristics.

Sector Breakdown Insights

Exhibit 3 shows that as of June 30, 2025, the S&P 500 GARP 100 Index underweighted the Information Technology sector by about 10%, with Consumer Staples also underweight. The index had a high weight in Industrials and Financials. This is due to the multi-factor selection criteria of the methodology, which considers both growth and valuation metrics.

The S&P 500 GARP 100 Index has a multi-factor focus, having historically demonstrated strong fundamental characteristics across growth, value and quality metrics. Over the back-tested period, it exhibited significantly higher EPS and sales growth compared to the benchmark. Additionally, the index displayed strong quality metrics, including return on equity (ROE), return on invested capital (ROIC), operating margins and lower debt-to-capital ratios. Furthermore, the index featured lower price-to-earnings ratios, highlighting its emphasis on a lower valuation approach.

Historical Macroeconomic Performance

Exhibit 5 shows the monthly excess returns of the S&P 500 GARP 100 Index across various environments defined by rising and falling growth and inflation. Through its multi-factor approach, the index historically showed positive excess returns across each environment analyzed for this back-tested period.

Conclusion

The S&P 500 GARP 100 Index tracks companies within the S&P 500 that exhibit growth potential and strong valuations. Launched in November 2024, the index employs a rigorous multi-factor methodology that integrates growth, value and quality metrics. Back-tested historical performance analysis revealed significant outperformance against its benchmark, with defensive qualities and robust fundamentals.

¹ For the full methodology rules, please refer to the S&P GARP Methodology Document.

² For more information, please see: Hao, Bill and Rupert Watts. “A Historical Perspective on Factor Index Performance across Macroeconomic Cycles.” S&P Dow Jones Indices. Nov. 14, 2024.