Bloomberg Anywhere Remote Login Bloomberg Terminal Demo Request


Connecting decision makers to a dynamic network of information, people and ideas, Bloomberg quickly and accurately delivers business and financial information, news and insight around the world.


Financial Products

Enterprise Products


Customer Support

  • Americas

    +1 212 318 2000

  • Europe, Middle East, & Africa

    +44 20 7330 7500

  • Asia Pacific

    +65 6212 1000


Industry Products

Media Services

Follow Us

Tailwinds For Megacaps in 2005?

By Bill Gerdes Does the dawn of the New Year offer better prospects for the biggest of the big-cap stocks, or megacaps -- specifically, the S&P 100-stock index? Many market observers expect large-caps to outperform in 2005, after trailing small-cap stocks in recent years.

The S&P 100, often known by the ticker symbol under which its index options trade -- OEX

-- measures large-cap company performance. This market-cap-weighted index is a subset of the S&P 500-stock index, and is made up of 100 major, blue-chip companies across diverse industry groups. The S&P 100's median market cap is $31.6 billion, vs. $10.4 billion for the S&P 500.

Standard & Poor's believes the S&P 100 will outshine the S&P 500 in a few key measures over the coming 12 months. Based on the STARS rankings of the stocks in the respective indexes by S&P equity analysts, the S&P 100 has an average STARS ranking of 3.84 (out of 5), compared with 3.63 for the S&P 500. The megacap index also has a slightly higher

dividend yield than the S&P 500, 2% vs. 1.8%.

DIMINISHED ADVANTAGE. The megacaps' advantages bode well for this year, in S&P's view. "Over the next 12 months, we believe the megacaps could outperform the large-caps because of overall STARS rankings and dividend yields," says Sam Stovall, chief investment strategist of Standard & Poor's Equity Research Services.

Despite these advantages, the S&P 100 may not enjoy a multiyear lead over the S&P 500, according to Stovall, as the broader, large-cap index shows higher earnings potential and less

volatility. He believes the S&P 500 offers more favorable earnings prospects than the S&P 100, based on Wall Street projections. The Street projects a five-year earnings growth rate of 12.1% for the S&P 500, vs. 11.3% for the S&P 100.

The large-cap index also appears to have a lower risk profile than the megacap index, in Stovall's view. With a wider base likely to dampen volatility, the S&P 500 has a lower 15-year standard deviation than the S&P 100, 17.4 vs. 22.

INVESTMENT PLAYS. Interestingly, the two indexes have similar overall valuations. The S&P 100 has a 16.3

price-earnings ratio on projected 12-month operating earnings, while the S&P 500's p-e is 16.5.

How can individual investors play the megacap index? Few retail-investment vehicles exclusively track the S&P 100. They include an exchange-traded fund that tracks the S&P 100, iShares S&P 100 Index (OEF), and a mutual fund, North Track S&P 100 Portfolio (PPSPX ). Gerdes is an associate editor for Standard & Poor's Global Editorial Operations

blog comments powered by Disqus