Killer graphic below from this Corrie Dreibusch story at the Wall Street Journal documenting the S&P 500’s evolution.
At the beginning, the famed index was all industrial stocks, utilities and rails (made sense in the 1950’s). Financials weren’t awarded their own category until the 1970’s and in the years since there’s been a huge rethink of sector composition. Last week, REITs were spun out of the Financials and are now their own sector – at 3% of the whole.
To me, the most important line in the story is the final one, quoting S&P Dow Jones committee member David Blitzer: “At the end of the day, it’s more an art, not a science.”
Driebusch highlights the inconsistencies of the index, such as rivals Wal-Mart and Target being in two different sectors (Staples and Discretionary, respectively) and Amazon, which has evolved into a monster in cloud technology being listed as a Discretionary rather than a Tech company because they used to be mainly a bookseller.
To which I would add, the worship of these indices, as though they were created wholly from data and not a mix of subjective opinions, is the real problem. I refer to this sort of thing as Scientism. It’s a massive distraction for investors to obsess over how they’re doing versus a passive index that is, itself, created actively.
Anyway, here’s the index and how its changed, in a great graphical format. Take a look (click to embiggen!):