Does the Fortune 500 or the S&P 500 offer a better alternative for measuring the performance of high-quality, less volatile U.S. large cap blue-chip stocks? Our efforts show that the Fortune 500 has been the superior benchmark for U.S. large-cap blue-chip stocks since its inception in 1999. It has a higher return and lower volatility, while providing a diverse universe of blue-chip components. Also, the S&P 500 appears to have a subjective bias toward companies having more volatile earnings and market capitalization, which possibly leads to its greater market volatility relative to the Fortune 500.
We also reviewed the back-casted, historical performance of the Fortune 500 during the 10 1/2-year period ending in June 2002 and compared it with the S&P 500's performance. We found the Fortune 500's annual price appreciation outperformed the S&P 500's, and with less volatility, for most of the period. Therefore, we conclude that the Fortune 500 is a superior proxy for large-company U.S. stocks than the S&P 500 Index. We attribute the superior performance to the selection process used to determine the Fortune 500.
C. Michael Carty is founder of New Millennium Advisors, an investment management firm in New York City. Herbert D. Blank is president of QED International Associates, an investment consulting firm in New York City.