Indexology^® Blog

With global fragmentation accelerating and geopolitical risks rising, the traditional assumptions underpinning U.S. equity investing may be due for a fresh look. While the S&P 500^® has long served as the cornerstone for broad-based U.S. market exposure, globalization has reshaped the revenue profile of many constituents. Today, more than a quarter of the companies in the index generate the majority of their revenue outside the U.S.¹

In response, S&P Dow Jones Indices LLC (S&P DJI) has created two newly innovative benchmarks that aim to refine how S&P DJI measures U.S. equity large-cap companies: the S&P 500 U.S. Revenue Leaders Index and the S&P 500 U.S. Revenue Market Leaders 50 Index.

Reassessing Traditional Market Exposure

Globalization was once a tailwind. But increasingly, foreign revenue may introduce hidden risks that can complicate a U.S.-focused investment thesis. Companies with significant overseas exposure may face regulatory uncertainties, operational inefficiencies and currency translation losses that don’t always show up in domicile-based analyses. Moreover, in an environment of rising tariffs and shifting trade alliances, these risks are potentially more realizable.

This factor is especially important today, as the U.S. continues to outpace peer economies. Between 2019 and 2024, the U.S. economy grew faster than every other G7 country, driven by a surge in technology investments, infrastructure spending and resilient consumer demand. Investors seeking to align portfolios with this growth may benefit from a more targeted lens.

Two Indices, One Goal: A Stronger U.S. Core

In response to this development, S&P DJI constructed indices that emphasize domestic economic alignment over global reach and licensed those indices to Global X for use with exchange-traded funds.

• The S&P 500 U.S. Revenue Leaders Index selects companies from the S&P 500 that derive the majority of their revenue from within the U.S. The result is a purer proxy for U.S. economic exposure that reduces the impact of foreign revenue streams.
• The S&P 500 U.S. Revenue Market Leaders 50 Index goes a step further. It filters for companies that not only have at least 50% U.S. revenue but also rank highly on a Market Leader Score. This score is based on sustained free cash flow margins, return on invested capital and market share. These three metrics are closely linked to quality and operational resilience, and they provide a factor-based approach to pure-play U.S. equity indexing.

Conclusion

The world of 2025 looks very different from the one in which the S&P 500 was incepted. In this new landscape, the licensing relationship between Global X and S&P DJI offers a timely new measure of U.S. equity investing. This approach recognizes the evolving realities of global markets and the potential strategic value of domestic focus.

These indices aren’t just alternatives; they represent a new framework for investors who want to be precise about what “U.S. exposure” means.

The author would like to thank Scott Helfstein for his contributions to this blog.

¹FactSet Research Systems. (n.d.). S&P 500 [United States Revenue Percentage]. Data accessed July 7th, 2025.

Disclosures:

Information provided by Global X Management Company LLC.

Investing involves risk, including the possible loss of principal. Diversification does not ensure a profit nor guarantee against a loss.

The Indexes’ focus on companies that earn the majority of their revenue in the United States may increase sector concentration and reduce exposure to internationally diversified firms, which could cause the Indexes to underperform the broader S&P 500 when foreign-revenue companies outperform. In addition, the Market Leader Score is derived from historical quantitative factors (free cash-flow margins, return on invested capital and market share) that may not predict future performance and can lead to higher turnover and associated costs.

This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information is not intended to be individual or personalized investment or tax advice and should not be used for trading purposes. Please consult a financial advisor or tax professional for more information regarding your investment and/or tax situation.

Past performance does not guarantee future results.

The S&P 500 U.S. Revenue Leaders and S&P 500 U.S. Revenue Market Leaders 50 Indices (the “Indices”) are products of S&P Dow Jones Indices LLC or (“S&P DJI”). S&P®, S&P 500®, US 500™, The 500™ are trademarks of Standard & Poor’s Financial Services LLC or its affiliates (“S&P”); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”). These marks have been licensed by S&P DJI and sublicensed for use by Global X for certain purposes. Exchange-traded funds based on the Indices are not sponsored or sold by S&P DJI, Dow Jones, S&P or their respective affiliates and none of such parties make any representation regarding the advisability of investing in any such funds nor do they have any liability for any errors, omissions, or interruptions of the Indices.

As financial markets respond to the ongoing energy transition, market participants are exploring ways to address the related risks and opportunities. Indices can provide insights to these factors. In this context, the S&P Global Carbon Credit Index, which turned six years old on July 25, 2025, emerges as a potential tool for enhancing diversification and to help understand the performance of underlying carbon credit markets.¹

The S&P Global Carbon Credit Index tracks the most liquid segment of the tradable carbon credit futures markets, including futures contracts on European Union Allowances, U.K. Allowances, California Carbon Allowances and the Regional Greenhouse Gas Initiative and Washington Carbon Allowances (WCA), with pricing data from ICE Futures Pricing.

Exhibit 1 presents a correlation matrix that uses five-trading-day rolling returns to compare the S&P Global Carbon Credit Index with indices such as the S&P/IFCI Composite, iBoxx $ Liquid High Yield Index, iBoxx $ Liquid Investment Grade Index, S&P Listed Private Equity Index, S&P 500^® and S&P United States REIT, covering the period from July 25, 2019, to July 25, 2025. The results of this analysis show that the S&P Global Carbon Credit Index exhibited a low correlation with these traditional indices, particularly with the iBoxx $ Liquid Investment Grade Index and iBoxx $ Liquid High Yield Index, with correlation values of 0.23 and 0.36, respectively.

To evaluate the potential diversification characteristics of the S&P Global Carbon Credit Index, we explored 13 hypothetical compositions, as illustrated in Exhibit 2. Starting with Composition 1, which contained only indices #2 to #7 in Exhibit 1, we examined the hypothetical impact of adding weight to the S&P Global Carbon Credit Index in 5% increments, with the remaining composition weights retaining their original relative proportions. As a result, we rebalanced each composition by proportionately decreasing the weight of the other indices, ensuring they retained their initial allocation ratios from Composition 1 in all subsequent compositions, while excluding the weight of the S&P Global Carbon Credit Index. For example, in Composition 1, the S&P 500 represents 25% of the composition. In Composition 2, with the addition of the S&P Global Carbon Credit Index at 5%, the weight of the S&P 500 is adjusted to 23.75%, reflecting 25% of 95% of the total composition.

Next, we calculated the performance for each hypothetical composition (assuming a daily rebalance to the target weights) for the period from July 25, 2019, to July 25, 2025. The resulting annualized returns, annualized volatilities and corresponding return/risk ratios are summarized in Exhibits 3 and 4.

The results of this assessment were revealing. Composition 1 began with an annualized volatility of 15.17%, resulting in a return/risk ratio of 49.07%. As the weight of the S&P Global Carbon Credit Index increased, both the return/risk ratio improved and the annualized return increased. This trend peaked in Composition 9, which recorded values of 59.96% for the return/risk ratio and 10.04% for the annualized return, associated with a 40% weight to the S&P Global Carbon Credit Index.

However, beyond Composition 9, as the weights in the S&P Global Carbon Index grew larger, volatility began to increase, while the return/risk ratio declined.

Accordingly, we may conclude that over its live history, carefully considered tilts to the S&P Global Carbon Credit Index could have led to enhanced risk-adjusted performance. Moreover, due to its historically low correlation with other traditional asset class benchmarks, the S&P Global Carbon Credit Index may provide the basis for a strategic diversification of traditional market risks as they evolve, while simultaneously serving as a mechanism for addressing emissions exposure and mitigating the potential risks associated with the energy transition.

The author would like to thank Maya Beyhan for her continued mentorship and contributions to this blog.

¹ For more details on how carbon credit futures can help mitigate emission exposures and energy transition risks, see Beyhan, Maya, and Kennedy, William, “The role of indexes in the energy transition,” S&P Global, March 4, 2025.

For over 20 years, the S&P Indices versus Active (SPIVA^®) U.S. Scorecard has assessed how active mutual fund managers perform against their relevant S&P Dow Jones Indices benchmarks across various timeframes and asset classes. The scorecard’s methodology was enhanced in 2015 to include institutional accounts and was further extended in 2023 to include separately managed wrap accounts (SMAs), which have an annual fee structure that bundles (or wraps) all the administrative, commission and management expenses for the account.

Wrap accounts differ from institutionally focused separate accounts in that they allow smaller market participants to access professional portfolio managers, which were once only available to large institutional investors.¹ The SPIVA Institutional Scorecard is important because it facilitates comparisons between institutional and SMA/wrap accounts on a gross-of-fees basis, eliminating any possibility that fees are the sole contributor to a given manager’s underperformance.

Exhibit 1 demonstrates that 55% of equity SMAs/wrap accounts underperformed their benchmarks in 2024, down 5% from 2023. This difference was more pronounced in fixed income, where only 32% of SMAs/wrap accounts underperformed in 2024 but over 65% underperformed in the year prior. Nevertheless, and consistent with past SPIVA research, rates of underperformance for equities and fixed income increased over longer measurement periods. 80% of equity accounts and 57% of fixed income accounts failed to outperform their respective benchmarks over a 10-year period.

Active performance varied considerably by market capitalization. 67% of All Large-Cap SMA/wrap managers underperformed the S&P 500^® in 2024, generally consistent with their institutional mutual fund peers. Small-cap managers fared better, with only 19% underperforming their respective benchmarks in 2024, outpacing the 30% underperformance rate in 2023. Managers were perhaps aided by style bias opportunities to tilt toward outperforming large-cap stocks. Last year, The 500™ outpaced the S&P MidCap 400^® and S&P SmallCap 600^® by 11.1% and 16.3%, respectively.

Turning to fixed income SMA/wrap performance, Exhibit 3 shows that U.S. Aggregate and Core accounts delivered majority outperformance, with only 11% and 13% of accounts failing to outperform their benchmarks, respectively, which was an improvement over their institutional peers. However, Municipal accounts may have had a tougher time, with more than half underperforming the S&P National AMT-Free Municipal Bond Index.

Beating the benchmark can be a challenge regardless of investment vehicle, and SMAs/Wrap accounts are no exception. For a more complete analysis of performance across segregated institutional and SMAs/wrap accounts, we invite you to read our full 2024 SPIVA Institutional Scorecard.

¹ Comprehensive definitions for SMAs can be found in the eVestment Alliance Glossary of Terms.

For over two decades, S&P Dow Jones Indices has measured the performance of actively managed funds against their index benchmarks across the world through the SPIVA Scorecards. Take a closer look at the fundamental principles that guide our SPIVA research and discover the insights these scorecards offer across asset classes, regions and market segments.

To indicize means to provide, in passive form, a strategy formerly available only via active management. Until the early 1970s, there were no index funds; all assets were managed actively. The shift of assets from active to passive management is one of the most important trends in modern financial history. Our recent Annual Survey of Indexed Assets shows assets tracking the S&P 500^® amounted to USD 13 trillion as of December 2024.¹

One of the reasons for the popularity of indexing is its low cost relative to active management. As indexing has grown, investors have benefited substantially by saving on fees. We can estimate the fee savings by multiplying the difference between the average expense ratios of active and index equity mutual funds² by the total value of indexed assets for The 500™, the S&P MidCap 400^® and the S&P SmallCap 600^®.

When we aggregate the results, we observe that the savings in management fees in 2024 was USD 52 billion (see Exhibit 1), an increase of USD 12 billion from the USD 40 billion in savings observed in 2023. Of course, this USD 52 billion estimate understates the full cost savings of the index industry, since it encompasses indices only from S&P Dow Jones Indices (and not even all of those).

Obviously, the cost savings generated by the shift from active to passive management would be inconsequential if market participants lost more in performance shortfalls than they gained in reduced fees. However, as readers of our SPIVA^® reports are well aware, that’s decidedly not the case: most active managers have underperformed most of the time. Looking across our more than 24 years of history, large-cap active managers posted majority outperformance in only three years. Long-term underperformance has been even worse, with 91% of all large-cap U.S. managers lagging The 500 over the 20 years ending in June 2025. The rise of passive management has been a notable consequence of active performance shortfalls.

The lives of active managers have been further challenged by the indicization of markets, as the movement of assets to passive alternatives can cause the least capable active managers to lose the most assets and the quality of the surviving active managers to rise. As a result, the competition for outperformance becomes tougher,³ consequently raising the bar for surviving managers.

Advances in passive management have made it easier for investors to access efficient and inexpensive strategies spanning across the capitalization spectrum, geographies, sectors, factors and themes, compounding the benefits for numerous market participants globally.

¹ S&P Dow Jones Indices Annual Survey of Assets. S&P Dow Jones Indices, 2024

² See Ellis, Charles D., “The Loser’s Game,” The Financial Analysts Journal, Vol. 31, No.4, Jul/August 1975, pp. 19-26. New York: Financial Analysts Federation.

³ Expense ratios sourced from Investment Company Institute, 2025 Investment Company Fact Book.