Beyond the SP 500: Outperforming Indexes and Their Characteristics

The SP 500 is a widely recognized benchmark index, but several other indexes have historically outperformed it in various market conditions. This article explores notable indexes that have demonstrated superior performance compared to the SP 500, highlighting their unique characteristics and potential risks.

Notable Indexes That Outperform the SP 500

NASDAQ Composite Index
This index is heavily weighted toward technology and growth stocks. During bull markets driven by technological innovations, the NASDAQ Composite Index has often outperformed the SP 500. It is particularly relevant in periods of significant tech advancements and innovation.

Russell 2000 Index

The Russell 2000 Index focuses on small-cap companies. These firms can outperform larger companies in certain economic conditions, especially during economic recoveries. Small-cap stocks are more agile and can adapt quickly to changes in the market, making them attractive in recovering economies.

MSCI Emerging Markets Index

This index includes stocks from developing countries, offering higher growth potential compared to mature markets. While these stocks can provide higher returns, they come with increased volatility. Investing in emerging markets requires a thorough understanding of global economic trends, geopolitical risks, and market cycles.

Dow Jones U.S. Growth Index

Concentrated on growth-oriented companies, this index can outperform the SP 500 in growth-focused market environments. These companies are typically at the forefront of technological and industrial advancements, making them attractive during periods of economic expansion.

FTSE All-World Index

The FTSE All-World Index includes international stocks and has the potential to outperform the SP 500 during global economic strength or when U.S. markets are underperforming. This index offers diversification benefits, spreading investment across multiple markets and economies.

Sector-Specific Indexes

Certain sector-specific indexes, such as technology and healthcare, can outperform the SP 500 when those sectors are experiencing rapid growth. These indexes are ideal for investors who want to focus their investments on high-growth areas.

Performance Variability and Risk Considerations

While these indexes have the potential to outperform the SP 500, it is important to understand that their performance can vary significantly based on market conditions, economic cycles, and investor sentiment. For example, small and micro-cap stocks (like the Russell 2000) often perform better on the upside but worse on the downside. Historically, small-cap stocks have returned around 10-11% annually, although this figure can fluctuate.

SP 400 Index

The SP 400 is the U.S. middle cap index, offering a balanced approach with the size of large companies and the growth potential of smaller firms. This index provides a good compromise by including companies that are less likely to go bankrupt easily but still have substantial growth potential.

Over the long term, the SP 400 has often almost doubled the gains of the SP 500, as evidenced by data beginning in 1972. This highlights the potential of middle-cap stocks in delivering solid returns over extended periods.

Conclusion
Investors seeking to outperform the SP 500 have a range of options, each with its unique characteristics and risks. Understanding the performance of these indexes and the underlying factors that influence their returns is essential for making informed investment decisions.