S&P 500 Growth Index

S&P 500 Growth Index

The S&P 500 Growth Index is a stock index administered by Standard & Poor's-Dow Jones Indices. Investors wishing to invest in the index can do so using the iShares S&P 500 Growth ETF (IVW). The S&P 500 (formerly S&P 500/Citigroup) Growth Index is a market capitalization-weighted index, which means that the relative share of the index made up of specific securities is determined based on their share of the total market capitalization of the S&P 500. If a group of companies that were previously doing exceptionally well suddenly begins to perform poorly, the index would be very vulnerable to any decline in their share price, since those companies would have come to represent a large portion of the overall index. Particularly when looking at growth companies, the use of a capitalization-weighted methodology can cause the performance of the index to depend significantly on the performance of just a small portion of its member companies. The S&P 500 Growth Index is a stock index that represents the fastest-growing companies in the S&P 500.

The S&P 500 Growth Index is a stock index that represents the fastest-growing companies in the S&P 500.

What Is the S&P 500 Growth Index?

The S&P 500 Growth Index is a stock index administered by Standard & Poor's-Dow Jones Indices. As its name suggests, the purpose of the index is to serve as a proxy for growth companies included in the S&P 500. The index identifies growth stocks using three factors: sales growth, the ratio of earnings change to price, and momentum. 

This index may be compared with the S&P 500 Value Index.

The S&P 500 Growth Index is a stock index that represents the fastest-growing companies in the S&P 500.
It is currently heavily weighted toward prominent American technology companies.
Investors wishing to invest in the index can do so using the iShares S&P 500 Growth ETF (IVW).

Understanding the S&P 500 Growth Index

The S&P 500 (formerly S&P 500/Citigroup) Growth Index is a market capitalization-weighted index, which means that the relative share of the index made up of specific securities is determined based on their share of the total market capitalization of the S&P 500. In simpler terms, larger companies make up a greater percentage of the index, while smaller ones represent a relatively small portion.

This simple fact can have fairly significant implications for investors. Particularly when looking at growth companies, the use of a capitalization-weighted methodology can cause the performance of the index to depend significantly on the performance of just a small portion of its member companies. In times when those companies continue to perform well, this dynamic will of course benefit those who are invested in the index, as the performance of the index will be “pulled upward” by those high-flying members.

Investors must remember, however, that this dynamic can also work in the opposite direction. If a group of companies that were previously doing exceptionally well suddenly begins to perform poorly, the index would be very vulnerable to any decline in their share price, since those companies would have come to represent a large portion of the overall index. Therefore, in extreme circumstances such as existed at the end of the dotcom bubble, indexes weighted by market capitalization could prove particularly vulnerable to this kind of decline.

Real-World Example of the S&P 500 Growth Index

With that in mind, it is not surprising to learn that the S&P 500/Citigroup Growth Index is comprised of some of the largest and fastest-growing companies in the S&P 500. In particular, the index is especially concentrated in some of America’s largest and most famous technology companies, such as Apple (AAPL), Microsoft (MSFT), Amazon (AMZN), Facebook (FB), and Alphabet (GOOG). Collectively, these five companies alone represent roughly one-third of the entire index.

When deciding which companies to include, the index administrators review various quantitative factors, including the companies’ trailing 5-year growth rates in revenues and earnings per share (EPS). For those wishing to invest in the companies represented by this index, they can do so by using the iShares S&P 500 Growth exchange-traded fund (ETF), which operates under the ticker symbol IVW.

Related terms:

Blue-Chip Index

A blue-chip index seeks to track the performance of financially stable, well-established companies that provide investors with consistent returns. read more

Capitalization-Weighted Index

A capitalization-weighted index is a type of market index with individual components that are weighted according to their total market capitalization. read more

Dotcom Bubble

The dotcom bubble was a rapid rise in U.S. equity valuations fueled by investments in internet-based companies during the bull market in the late 1990s. read more

Earnings Per Share (EPS)

Earnings per share (EPS) is the portion of a company's profit allocated to each outstanding share of common stock. Earnings per share serve as an indicator of a company's profitability. read more

Exchange Traded Fund (ETF) and Overview

An exchange traded fund (ETF) is a basket of securities that tracks an underlying index. ETFs can contain investments such as stocks and bonds. read more

Growth Stock

A growth stock is a publicly traded share in a company expected to grow at a rate higher than the market average.  read more

Market Capitalization

Market capitalization is the total dollar market value of all of a company's outstanding shares. read more

Market Index

A market index is a hypothetical portfolio representing a segment of the financial market. Popular indexes include the Dow Jones, S&P 500, and Nasdaq. read more

Russell 3000 Index

The Russell 3000 Index is a market-capitalization-weighted equity index that seeks to track 3,000 of the largest U.S.-traded stocks. read more

S&P MidCap 400 Index

The S&P MidCap 400 is a subset of the S&P 500 and serves as a barometer for the U.S. mid-cap equities sector. read more