Monthly total return data are available since the beginning of 1999 for the Fortune 500 and back to the beginning of 1926 for the S&P 500. Accordingly, we compared the monthly total return series for both indexes from January 1999 through June 2002. Both series are highly correlated throughout the time period with a correlation coefficient of 99.4%. Figure 3 compares their annual returns and standard deviations.
The Fortune 500 outperformed the S&P 500 in 2000, 2001 and 2002 (through June), all in declining markets. It underperformed in 1999, the first year of its inception, in a rising market. Although the comparison period is short, the Fortune 500's superior returns in recent years suggests that it has different performance characteristics than the S&P 500.
The historic volatility of the two indexes further illustrates differences in their performance. The Fortune 500 has had less volatility, as measured by annualized standard deviation of total returns, than the S&P 500 in the latest three periods analyzed, and its volatility coincided with the S&P's in 1999.
Despite the limited period over which the analysis was conducted, the evidence suggests that the Fortune 500 has a higher return and less volatility than the S&P 500, implying that the former is a more suitable alternative as a benchmark for U.S. large-cap blue-chip stocks. To shed further light on this issue, we compared the performance of the Fortune 500 against the S&P 500 over the last 10 1/2 years. (Historical index values for periods prior to April 30, 1999, were calculated by Ibbotson Associates.)
Historical Analysis
Monthly price changes of the Fortune 500 and S&P 500 were computed for the period from January 1992 through June 2002, and the two series are 99% correlated. A comparison of their annual price appreciation appears in the table in Figure 4.
During the period, the Fortune 500 achieved greater price appreciation in eight of the nearly 11 periods and an average annual increase of 9.5% versus the S&P 500's 8.6%. The Fortune 500 outperformed the S&P 500 between 1994 and 1998 and from 2000 on, in both rising and falling markets. The length of the period seems sufficient to conclude that the Fortune 500 would have provided investors with greater price appreciation than the S&P 500.
The historic volatility of the Fortune 500 and the S&P 500 further illustrates differences in their performance. As shown in Figure 4, the Fortune 500 has less volatility, as measured by annualized standard deviation, than the S&P 500 in six years and equivalent standard deviation in three years, with an average of 13.8% versus the S&P's 14.1%.
In fact, the Fortune 500 outperformed the S&P 500 over interim periods over the last 10 years ended in June 2002, as shown in Figure 5, including year-to-date, 1-, 3-, 5- and 10-year periods based on price appreciation and volatility.
Summary And Conclusions