U.S. S&P: Standard & Poor's, the U.S. ratings agency, generally speaking S&P refers to the U.S. stock S&P 500 index, more comprehensive than the Dow and the Nasdaq
While the S&P 500, like the CSI 300, is a blue-chip index, the S&P 500 doesn't simply select stocks based on the size of the listed companies. There is no limit to the size of the market capitalization of the companies included in the S&P 500. In other words, the S&P 500 has not only large companies (about 90%), but also many mid-sized companies (about 10%).
These companies have to be leaders in an industry to be selected. So the S&P 500 is a blue-chip index with subjective judgment attached.
In addition to being an industry leader, the ROE of a component is also a hard metric for inclusion in the S&P 500, and thousands of points are needed to say that the long-term ROE of a U.S. Equity Research Associates component is better than that of a Standard & Poor's Index. >better constituents are more likely to make the cut. This also leads to some differences in the valuation performance of the S&P 500 versus a typical market-cap-weighted index.
The S&P 500 was the first index to be tracked and issued as an index fund. S&P 500 index funds appeared as early as 1992, and the best-known S&P 500 index fund in U.S. stocks is State Street's SPDR, code SPY (U.S. stocks generally use the letters of the alphabet as a code).
The S&P 500 is also one of the most heavily tracked indexes today, with trillions of dollars invested in it, far more than any other U.S. stock index. So many assets even brings the constituent stock buying effect: if a stock is included in the S&P 500, the stock will get a lot of index fund money to buy after the inclusion, resulting in some rise; if the S&P 500 is eliminated, but also due to a short period of time to sell a relatively large amount of lead to a decline.
Three features of the S&P 500
1. A wider "broad" broad-based index
The S&P 500 is a very good broad-based index fund, compared to our usual contact with the Shanghai and Shenzhen 300, the Hang Seng and other indices, the S&P 500 is relatively more in the sector allocation. 500 is relatively more even in terms of sector allocation.
U.S. stocks also follow a sector categorization methodology like 10 primary sectors, and we can see that the highest percentage of the 10 primary sectors is information technology at 19.29%, followed by financials at 15.33%, and health care, consumer discretionary, and nondiscretionary (consumer discretionary) are also well represented.
Let's take a look at the A-share equivalent of the CSI 300 index, which also includes 10 primary industries, but the CSI 300 is more heavily skewed, with financials taking up 40%, and excellent industries like information technology, healthcare, and daily consumption all under-represented in the CSI 300.
We mentioned in our previous analysis of sector indices that in the long run, healthcare and daily consumption are the two best sectors, with low cyclicality, high free cash flow, and good long-term returns on stocks; optional consumption and financials are the second-best sectors, but they can beat the market average. Leading stocks in the information sector would also be very good.
Sectors other than that, like materials and energy, are much more cyclical, with sharp rises and falls and not good long-term returns.
Good sectors make up 54% of the S&P 500, compared with only 30% of the CSI 300. This makes the S&P 500 relatively less cyclical, more stable trend, easier to realize the "slow bull". You can compare the two movements over the same period, the ups and downs of the CSI 300, the slow bull is the S&P 500. the S&P 500 is closer to what we expect to be a "long bull".
This is the first characteristic of the S&P 500: it is a broad-based index that is more "broad" and more stable.
2. Represents the benchmark return of the U.S. stock market
The second characteristic of the S&P 500 is that it serves as a market benchmark, reflecting the average return of the market. In other words, if the active fund managers or their own investment returns than the S&P 500, it is better to invest in the S&P 500 index fund. Warren Buffett also mentioned that if he died, the remaining cash would be bought into an S&P 500 index fund for the very reason that the S&P 500 can capture the average market return.
So what exactly is the yield on the S&P 500?
The S&P 500 started at 10, and since 1941, the S&P 500 is 2,037 today. Not counting dividend income, the S&P 500 has risen more than 200 times in 75 years, for an annualized return of about 7%. Considering the S&P 500's historical average dividend yield of about 2-2.5% or so, the S&P 500 has been able to give investors an annualized return of about 9% over the past 75 years.
This return is actually weaker than that of Hong Kong and A-shares over the same period. After all, the past 20 years or so have been a period of China's economic rise, with listed companies growing earnings at a much higher rate than U.S. stocks. But it gives the impression that there are more bulls and more people making money in US stocks, simply because the S&P 500's upward trend is more robust and gives the impression of being a bit more bullish.
3.
Dollar-denominated assets, diversify the risk of the yuan
As a domestic investor, we invest in the S&P 500 also has a very important role to play, is to diversify the risk of the yuan.
For one thing, the S&P 500 is a dollar-denominated asset, and for another, the volatility of the S&P 500 itself is much lower than that of A-shares, and the correlation is not great. So holding a portion of the S&P 500 index fund can diversify the risk of yuan depreciation and the risk of stock market volatility.
But because of domestic foreign exchange restrictions, many QDII funds investing in U.S. stocks have suspended subscriptions. Currently, you can buy ETFs that invest in U.S. stocks from the over-the-counter to transition. Those who have the ability to invest directly in U.S. stocks can switch foreign exchange to buy them themselves.
But the premise is that the valuation of the S&P 500 is worth investing in: we can wait patiently for the S&P 500 to be worth investing in before we go out and configure it.
When is the S&P 500 worth buying?
This is our main concern, when is the S&P 500 worth buying?
Investing in the S&P 500 we also refer to valuation metrics. For the S&P 500, because the industry allocation is more reasonable, less volatile earnings, so the valuation with the price-earnings ratio is more appropriate. We can look at the S&P 500 earnings chart, 98-99 years of the Internet bubble, 08-09 years of the economic crisis earnings appeared a short period of plummet, most of the time is still relatively stable, suitable for valuation with the price-earnings ratio.
S&P 500 in the selection of constituent stocks, will also focus on selecting high ROE stocks, so the P/E ratio can also be used as an auxiliary reference for the S&P 500.
There is a relatively large difference in the valuation performance of the S&P 500 between the pre-80s and post-80s. The S&P 500 had lower valuations in the 1970s and higher valuations in the late 1980s through 2000.
Buffett's analysis of this history, introduced before and after the 80's U.S. stock performance is very different from the first cause of interest rates. 1964-1981, the U.S. long-term treasury interest rates rose sharply from 4% to 15%, too high interest rates inhibit the performance of the stock market, resulting in the U.S. stock market during this period of very poor performance; and after 17 years back to below 3.5%, pushing up stock market overall valuation of the stock market, beginning a long-term bull market in U.S. stocks.
This explanation still makes sense, after all, "interest rates to investment is like gravity to an object, the higher the interest rate, the greater the downward pull."
The other reason is because of changes in industry share. Since the 80s, information technology, health care, consumer and other industries in the U.S. stocks in the share gradually increased, especially information technology industry, thanks to the technology bubble in the 90s, the industry has been greater development, and until today is still the S&P 500 accounted for the highest proportion of the industry. Excellent industry earnings stability, less cyclical, the corresponding valuation will be higher.
Low interest rates + great industries becoming dominant has kept the S&P 500 from ever seeing low valuations like the sub-10 PEs of the 70s since the late 80s.
Can this be sustained?
It can still continue longer into the future. A big reason why sectors such as leading IT stocks, everyday consumer goods and pharmaceuticals are excellent is also the stability of demand. These sectors are not going to see large movements in a short period of time. So this valuation characteristic of the S&P 500 will continue for a relatively long time to come.
So when we analyze the S&P 500, we need to differentiate between historical valuations over time.
The S&P 500's high undervaluation range
From the 1980s to the present, excluding the rise in P/E ratios due to sudden drops in earnings, the S&P 500 has averaged a P/E ratio of 17x; 16% of the time, it has been at a low valuation of less than 14x; and 16% of the time, it has been at a high valuation of more than 22x. So we can invest in the S&P 500 P/E in tranches when it's below 14 times and sell when it's above 22 times.
There were two times in '98-99 and '08-09 when the S&P 500 saw a sudden drop in earnings, and the P/E ratio was invalidated during those times. Like in '08 during the economic crisis, the S&P 500's P/E ratio suddenly skyrocketed, and if you mistakenly sell at this time thinking that the valuation is high, you're actually wrong.
When special circumstances arise, we can use the P/E ratio to assist.
Because the S&P 500 components have good ROEs, the corresponding PB ratios are relatively high. The average PB for the same period is between 2.7-3x, with the undervalued area of PB roughly under 2.3x and the overvalued area roughly over 3.5x. When the P/E ratio fails, the P/B ratio can be used to aid valuation.
What can we use to invest in the S&P 500?
SPY is the world's first S&P 500 index fund and one of the largest at over $100 billion. SPY is a good choice for investing in the S&P 500 in the U.S. stock market.
By the way, the U.S. index fund website, a variety of valuation disclosure information is more complete, unlike the domestic, to what nothing.
We can see that the current S&P 500 PE static price-earnings ratio of about 18.85, the price net ratio of about 2.68, the earnings per share growth rate in recent years is about 10.16%. These figures are in the normal range and we can continue to be patient.
Domestic investment in the S&P 500 is currently available through the Bosera S&P 500 ETF because QDII funds restrict foreign exchange. Domestic investment in the S&P 500, but also an additional part of the exchange rate risk. If the dollar appreciates relative to the RMB in the future, the probability is that we will earn, and in turn, it will affect the return of our investment. This is a double-edged sword.
Summary
Relative to the domestic financial over-representation of the CSI 300, the S&P 500 is a more comprehensive and excellent index: industry ratios are reasonable, earnings are stable, and the long bulls have made most investor returns are not bad. The S&P 500's reputation, maturity, and stability are all things that domestic indices have to learn from.
The current valuation of U.S. stocks is in the normal category, but the U.S. has a certain expectation of interest rate hikes. Higher interest rates will suppress the performance of the stock market to a certain extent, which is a good thing for us ~ we can be patient and wait for U.S. stocks to fall into our hunting area
Standard & Poor's is the world's authoritative financial analyst, founded by Mr. Poole in 1860. S&P was formed in 1941 by the merger of the Poole Publishing Company and the Standard Statistical Company. Standard & Poor's provides investors with credit ratings, independent analytical research, investment advisory services, etc. In 1975, the U.S. Securities and Exchange Commission SEC recognized Standard & Poor's as a "Nationally Recognized Rating Organization," or "NRSRO." On April 18, 2011, Standard & Poor's transferred the title of U.S. Financial Analyst Organization (S&P) to the U.S. Department of State. On April 18, 2011, Standard & Poor's downgraded its outlook on the U.S. long-term sovereign credit rating from "stable" to "negative," leaving the sovereign credit rating unchanged.
Standard & Poor's is the recognized standard in the financial and investment community for providing widely recognized credit ratings, independent research, and investment advisory services. Among the diversified financial services offered by S&P, the S&P 1200 and S&P 500 have become benchmarks for global stock market performance and U.S. portfolio indexes, respectively. The company also provides credit ratings for more than 220,000 securities and funds around the world. Today, S&P has become a world-class information brand and authoritative international analyst.
The formula for calculating the S&P 500 is as follows:
S&P 500 = total market capitalization of 500 companies/latest index divisor*latest index divisor is the benchmark