What Is the S&P 500? A Beginner’s Guide to Index Funds for Hong Kong Investors

TL;DR: The S&P 500 is a stock index that tracks the performance of 500 large publicly listed U.S. companies and is widely regarded as an important benchmark for gauging the overall direction of the U.S. stock market. Hong Kong investors can gain exposure to the S&P 500 through index funds or exchange-traded funds (ETFs), allowing them to diversify across leading U.S. companies in major industries without having to pick stocks one by one.

For many Hong Kong investors, investing in U.S. stocks is both appealing and, inevitably, somewhat unfamiliar. Among the many U.S. stock indices, the S&P 500 (short for Standard & Poor’s 500) is one of the most closely followed benchmarks worldwide. Whether in media coverage, financial analysis, or investment discussions, the S&P 500’s movements make headlines almost every day. What exactly is the S&P 500? How does it work? And what does it mean for Hong Kong investors? The sections below answer these questions one by one, helping you build a solid foundation for U.S. stock investing.

What is the S&P 500 Index?

The S&P 500 is a stock market index compiled and maintained by S&P Dow Jones Indices. It covers 500 large companies listed on major U.S. exchanges. Together, these companies account for about 80% of the total market capitalization of all U.S.-listed stocks, so the S&P 500 is widely viewed as a key indicator of the overall health of the U.S. stock market.

According to S&P Dow Jones Indices, as of the end of 2025 the combined market capitalization of S&P 500 constituents exceeded USD 61.1 trillion. When people ask, “How did the U.S. stock market do today?”, they are usually referring to the S&P 500’s performance.

The S&P 500’s historical development

The S&P 500 can be traced back to 1926, when the Standard Statistics Company created an index covering 90 stocks. In 1941, Poor’s Publishing merged with the Standard Statistics Company to form Standard & Poor’s. On March 4, 1957, the index was officially expanded to 500 constituents and renamed the “Standard & Poor’s 500 Composite Stock Index,” a name that remains in use today.

Based on historical data from S&P Dow Jones Indices, since 1926 the S&P 500’s average annual compound return (including reinvested dividends) has been about 9.8%, or roughly 6% after inflation; the index posted positive returns in about 70% of calendar years. However, markets are volatile and hard to predict—past performance does not guarantee future results.

Why the S&P 500 matters

The S&P 500 is often seen as a “barometer” of the U.S. economy mainly because it is broad-based and highly representative. Its constituents span 11 major sectors, including Technology, Financials, Health Care, Consumer (both Discretionary and Staples), Industrials, Energy, and Real Estate, offering a comprehensive reflection of how different types of U.S. companies are performing.

In addition, many studies show that over the long term, the S&P 500 has outperformed most actively managed funds. According to the SPIVA report by S&P Dow Jones Indices, over the past 20 years, more than 90% of U.S. active funds underperformed the S&P 500. If you’d like to learn more about core fund concepts such as passive vs. active management, asset allocation, and net asset value (NAV), see Fund Investing Basics: A Comprehensive Guide for Hong Kong Investors.

How are S&P 500 constituents selected?

Contrary to what many people assume, the S&P 500 is not simply the 500 largest companies by market capitalization. Instead, an index committee screens and adjusts constituents based on a strict set of criteria.

Key inclusion criteria

To be included in the S&P 500, a company must meet the following requirements:

• Market capitalization: Float-adjusted market capitalization of at least USD 22.7 billion (latest standard effective July 2025)
• Listing venue: Listed on the New York Stock Exchange (NYSE), Nasdaq, or Cboe
• U.S. company: Incorporated in the United States and with the U.S. as its primary listing venue
• Seasoning: Initial public offering (IPO) completed at least one year before the evaluation date
• Liquidity: Annual dollar value traded to float-adjusted market cap ratio above 0.75, and during the six months before the evaluation date, monthly shares traded of no fewer than 250,000 shares
• Profitability: Positive cumulative earnings over the most recent four quarters, with the latest quarter also profitable

Sector balance considerations

In addition to company-specific requirements, the committee also considers sector balance to ensure the index reasonably represents major types of U.S. companies rather than becoming overly concentrated in a single industry.

Because some companies issue multiple share classes, the S&P 500 actually includes about 505 stocks rather than exactly 500. For example, Alphabet (Google’s parent company) has both Class A (GOOGL) and Class C (GOOG) shares included in the index.

How is the S&P 500 calculated? The principle of market-cap weighting

The S&P 500 is calculated using a “float-adjusted market-cap weighted” methodology. Put simply, the larger a company’s market capitalization, the more it influences the index’s movements.

What is float-adjusted market cap?

“Float-adjusted market capitalization” is market cap calculated after excluding shares that are not available for public trading. These excluded shares include restricted holdings by government entities, large institutional investors, and company founders, because such shares are typically not freely traded in the market.

Concentration risk

Because the index is market-cap weighted, the top 10 constituents account for about 38% of total index market cap, while the top 50 together account for about 60%. This means price swings in a small number of mega-cap technology giants can have a significant impact on overall index performance. When learning about the S&P 500, investors should pay close attention to this characteristic.

Which 11 sectors does the S&P 500 cover?

Broad diversification is one of the S&P 500’s key features. Under the Global Industry Classification Standard (GICS), the index is divided into 11 sectors, ensuring the portfolio broadly covers major types of leading U.S. companies.

These 11 sectors are: Information Technology, Financials, Health Care, Consumer Discretionary, Industrials, Consumer Staples, Communication Services, Energy, Materials, Real Estate, and Utilities. Each sector’s weighting shifts with market changes, reflecting its relative size within the U.S. economy.

The dominance of Technology

In recent years, the Information Technology sector’s weight in the S&P 500 has continued to rise, making it the largest sector by weighting. Many well-known global technology companies are S&P 500 constituents, highlighting the influence of the U.S. tech industry worldwide.

Tip: Sector weights are adjusted periodically to reflect changes in market value. Investors can track real-time sector performance via Longbridge’s market data tools.

How to invest in the S&P 500?

The S&P 500 is an index and cannot be bought or sold directly. Investors typically participate indirectly through financial products that track the index.

Exchange-traded funds (ETFs)

ETFs are one of the most common ways to track the S&P 500. Listed on exchanges, ETFs can be traded like stocks, offering greater flexibility. Common S&P 500 ETFs include:

• SPY (SPDR S&P 500 ETF Trust): Issued by State Street Global Advisors; the oldest with very high liquidity; expense ratio about 0.09%
• IVV (iShares Core S&P 500 ETF): Issued by iShares under BlackRock; expense ratio about 0.03%
• VOO (Vanguard S&P 500 ETF): Issued by Vanguard; expense ratio about 0.03%; as of 2025, among the larger products in its peer group by assets under management

Expense ratio and assets-under-management data source: public disclosures by the respective ETF issuers. The products above are provided as neutral examples only and do not constitute a recommendation of any specific product; past performance and size do not represent future results.

Index mutual funds

In addition to ETFs, some fund providers offer index mutual funds that track the S&P 500, such as Vanguard 500 Index Fund (VFIAX) and Fidelity 500 Index Fund (FXAIX). These funds also tend to have low expense ratios, though their trading flexibility is generally lower than that of ETFs.

HKEX-listed products

For investors who prefer to trade in HKD or operate within the Hong Kong market, Hang Seng Investment Management Limited launched the “Hang Seng S&P 500 Index ETF” on the Hong Kong Stock Exchange in April 2024. Its HKD trading ticker is 3195 and its USD trading ticker is 9195, providing Hong Kong investors with a more convenient local-market option.

Longbridge Securities provides trading services for U.S. stocks and ETFs, enabling investors to participate in the U.S. market. If you’d like to learn more about available investment products, visit the Longbridge investment products page.

Tip: Before investing in any ETF or index fund, investors should carefully read the relevant fund prospectus and product key facts statement to understand investment risks, fee structures, and tax implications. Investments involve risk; product prices may rise or fall; past performance is not indicative of future results.

Key risks of investing in the S&P 500

While diversification can help reduce single-stock risk, S&P 500 index funds still face multiple types of market risk that investors should fully understand.

Broad market risk

The S&P 500 reflects the overall direction of the U.S. stock market. When U.S. or global equities decline broadly, the index is unlikely to be immune. Historically, the S&P 500 has seen significant drawdowns—for example, during the 2008–2009 Global Financial Crisis, the index fell more than 50% from its peak; during the 2000–2002 dot-com bubble burst, it declined by more than 40% cumulatively. Data source: historical data from S&P Dow Jones Indices.

Concentration risk

As noted above, the S&P 500 is market-cap weighted, meaning a small number of the largest companies have an outsized impact on the index. If these mega-cap leaders fall sharply, overall index performance may be significantly dragged down.

Currency risk

Hong Kong investors measuring returns in HKD should consider fluctuations in the HKD/USD exchange rate. While the HKD is pegged to the USD and relatively stable, currency risk is especially important to watch if you hold products denominated in other currencies.

Dividend tax implications

Non-U.S. investors (including Hong Kong investors) who hold U.S.-listed ETFs are typically subject to a 30% U.S. withholding tax on dividend income. Investors should factor this into their overall return assessment. For information on opening a U.S. stock account, completing the W-8BEN tax form, and basic trading rules, see Beginner’s Guide to U.S. Stock Investing for Hong Kong Investors.

Investors can also use analysis tools to further evaluate the risk and return characteristics of different investment products.

FAQs

What’s the difference between the S&P 500 and the Dow Jones Industrial Average?

The Dow Jones Industrial Average (DJIA) consists of 30 large U.S. companies and uses a price-weighted methodology; it also has a longer history. The S&P 500 covers 500 companies and uses market-cap weighting, offering broader coverage and generally considered a more comprehensive reflection of overall U.S. stock market performance. Both have their own characteristics, but the S&P 500 is widely regarded as the more representative market benchmark.

How often are S&P 500 constituents updated?

The index committee reviews constituents regularly, but changes are not made on a fixed schedule; they depend on whether companies continue to meet the inclusion criteria. Typically, several companies are added to or removed from the index each year.

What fees apply when investing in S&P 500 index funds?

The main cost is the fund’s annual management fee (i.e., the expense ratio). Major U.S.-listed ETFs generally have low expense ratios—for example, about 0.03% for VOO and IVV, and about 0.09% for SPY. Beyond management fees, investors should also consider trading commissions and other related costs. For Longbridge Securities’ latest fee details, see the Longbridge rates page.

Can an index fund fully replicate the S&P 500’s performance?

Index funds aim to track the S&P 500, but management fees and other trading costs typically cause actual returns to come in slightly below the index itself. This gap is known as “tracking error.” Generally, the lower the expense ratio, the smaller the tracking error.

Is the S&P 500 suitable for long-term investing?

The S&P 500’s long-term historical performance can serve as a reference, but investors should note that the index can experience substantial volatility in individual years, and past performance does not guarantee future results. Long-term outcomes depend on multiple factors, including entry timing, holding period, and personal risk tolerance. Before making any investment decision, it is advisable to fully understand the relevant risks.

Conclusion

The S&P 500 is an important market benchmark that tracks the performance of 500 large publicly listed U.S. companies. Since its formal establishment in 1957, it has remained a core reference point for global investors assessing U.S. equity performance. It uses a float-adjusted market-cap weighting methodology, spans 11 sectors, and its constituents are selected and reviewed regularly by an index committee under strict criteria.

For Hong Kong investors, understanding how the S&P 500 works is an important first step in learning about U.S. stock investing. Investors can participate indirectly through ETFs or index funds, but all investments involve risk, including the potential loss of principal. Be sure to fully understand the relevant product features and risks.

Which vehicle you choose depends on your investment objectives, risk tolerance, market view, and level of experience. No matter which tool you use, you must fully understand how it works, its risk profile, and trading rules, and establish a sound risk management plan. You can learn more through the Longbridge Academy or download the Longbridge App to explore more investing knowledge.