Indexology^® Blog

A Changing Composition of Equity Markets

Public equity indices have traditionally aimed to represent the broad investable ecosystem. They remain a core building block for investors seeking equity market insight, and benchmarks including the S&P 500^® continue to play this role effectively. However, structural changes in capital markets suggest that public equities may not always fully reflect the entire spectrum of where value is being created.

Private markets are playing an increasingly important role in the global economy. Companies are staying private for longer, often growing to a significant scale before an initial public offering (IPO). As a result, a meaningful share of value creation can occur outside of public markets.

Fewer Public Companies, More Private Capital

In 2000, there were approximately 12,700 publicly listed companies across the U.S. and Europe. By 2024, that number had declined to around 8,600, representing a reduction of roughly 32% (see Exhibit 1). The number of private equity-backed companies increased from about 1,400 in 2000 to more than 10,000 by 2020—a sevenfold increase.¹ These figures also highlight the extent to which corporate activity has shifted toward private ownership structures.

IPO activity is lower than in the 1990s, and firms have tended to go public at a more mature stage. As a result, an increasing share of value creation is occurring before companies reach public markets, meaning many investors are accessing these businesses only after a substantial portion of their growth has already taken place.

Large and Influential Companies outside Public Markets

The presence of large, systemically important private companies further illustrates this shift. Firms such as OpenAI, Anthropic and Databricks have achieved significant scale and influence while remaining privately held. Their absence from public benchmarks highlights a potential gap between index representation and the evolving structure of the economy.

Development of Public-Private Blending

These observations have contributed to growing interest in combining public and private exposures. In equities, integrating public and private companies within a single framework can provide a more complete view of growth across different stages of the company lifecycle.

A similar dynamic can be observed in credit markets, where public-private blended strategies are emerging. In this context, the rationale is less about reflecting growth and more about accessing a broader opportunity set, including the higher yield potential historically associated with private credit. Recent developments, such as blended exchange-traded credit funds, reflect this broader convergence between public and private market segments.

One possible extension is a blended equity composition incorporating both public and private companies. A structure consisting of a broad public benchmark blended with the S&P U.S. Private Stock Top 10 Index—which is part of the broader S&P Private Stock Index Series and measures the performance of the 10 largest private companies in the U.S. (see Exhibit 3)—may offer a practical framework for a strategy. The S&P Private Stock Index Series also includes benchmarks covering different regions and varying cohorts of leading private companies, enabling scalable public-private combinations across geographies and market segments.

Liquidity rules for funds vary by region, but most frameworks limit exposure to illiquid assets, typically keeping allocations in the low double-digit range. This means private assets can be included in traditional mutual funds or ETFs, but usually only at modest levels in line with local regulatory constraints.

At the same time, newer fund structures designed for less liquid investments—such as evergreen or semi-liquid vehicles—may have greater flexibility, allowing for higher allocations to private markets than traditional daily dealing funds.

The scenarios in Exhibit 4 illustrate how hypothetical blended compositions showed improved performance over time.

Secondary market developments also suggest that liquidity conditions are improving among the largest private companies.² This is particularly relevant for the largest constituents represented in emerging private stock indices, where company scale, institutional ownership and secondary market activity may contribute to more observable pricing than in the broader private market universe. The constituents of the S&P Private Stock Top 10 Index have also tended to have average market capitalizations greater than those of mid-cap public equities while remaining lower than the largest constituents of the S&P 500 (see Exhibit 5). This combination of scale and secondary market liquidity may support their inclusion in index-based structures and improve their compatibility with ETF implementation.

A comprehensive representation of the investable equity universe may enable investors to assess both the largest public companies and leading private firms increasingly shaping the global economy—particularly considering that innovation cycles, such as those driven by AI, are often initiated in private markets before scaling into public market leadership. Reflecting both dimensions may therefore lead to a more complete and forward-looking perspective on growth.

¹ MEKETA, “The Decreasing Number of Public Companies,” September 2024.

² J.P.Morgan, “Private market secondaries are booming amid an IPO slowdown,” April 13, 2026.

While headline returns often steal the spotlight, the path to those returns can be equally important—especially for those seeking to weather the market’s ups and downs over the long term. This underscores what makes the S&P 500^® Quality Index particularly interesting: it hasn’t just outperformed the S&P 500 over the long term, but it has done so with lower risk, greater consistency and resilience during periods of market stress. Much of S&P 500 Quality Index’s outperformance has come from its ability to participate in most of the S&P 500’s upside while limiting losses during market downturns. The first half of 2026 showcases this well: the S&P 500 Quality Index posted 20.98%, more than twice the S&P 500’s 10.21%, driven in part by the S&P 500 Quality Index posting a gain in Q1 2026 while the S&P 500 fell 4.33% (see Exhibit 1).

In addition to reviewing historical performance, this blog will highlight the S&P 500 Quality Index’s performance profile—featuring its asymmetric capture ratios, robust hit rates and notable outperformance during “risk-off” economic periods.

Performance

For more than three decades—including both live and back-tested performance—the S&P 500 Quality Index has outperformed the S&P 500 on a nominal basis by an annualized average of 285 bps (see Exhibit 2). Notably, its 14.13% annualized performance exceeded its volatility of 14.11%, resulting in a risk-adjusted ratio of 1.00—33% higher than the S&P 500’s already strong 0.75.

Moreover, while the S&P 500 Quality Index outperformed the S&P 500 in nominal terms across every period shown, it’s notable that this was accomplished with lower volatility and a smaller maximum drawdown over the full period. Importantly, the outperformance persisted during the live period. Since its launch on July 8, 2014, the S&P 500 Quality Index has outpaced the S&P 500 by 35 bps per year (see Exhibit 2), while also exhibiting lower annualized volatility (14.34% versus 14.85%).

As mentioned earlier, a key characteristic of the S&P 500 Quality Index has historically been its asymmetric capture ratios. With an upside capture of 96.6, the index has participated in nearly all of the S&P 500’s upside, while its 78.2 downside capture means that it has tended to provide significant protection during market declines, historically.

Another key characteristic of the S&P 500 Quality Index has been its consistent outperformance, demonstrated by its hit rate—the percentage of rolling periods during which it outperformed the S&P 500. As shown in Exhibit 4, the S&P 500 Quality Index outperformed the S&P 500 in 57% of one-month rolling periods, 61% of six-month rolling periods, 65% of one-year rolling periods, 75% of three-year rolling periods and 75% of five-year rolling periods.

The S&P 500 Quality Index’s unique performance profile may best be highlighted in Exhibit 5. In “risk-on” environments with rising growth, the index typically matches or slightly underperforms the S&P 500. However, during “risk-off” periods marked by falling growth, the S&P 500 Quality Index provides crucial outperformance—averaging 0.21% when both growth and inflation are declining, and 0.36% when growth is falling but inflation is rising.

Conclusion

The S&P 500 Quality Index’s performance in the first half of 2026 exemplifies its historical strength, delivering outperformance through downside protection in Q1 and exceeding the S&P 500’s gain in Q2. However, its long-term outperformance—both absolute and risk-adjusted—is only part of the story; equally important are its lower risk—reflected in lower volatility, drawdowns and capture ratios—consistency and resilience during past periods of economic stress. It’s the distinctive combination of these attributes that sets the S&P 500 Quality Index apart.

Private wealth managers occupy an important position between public markets and end-investor portfolios. Their views can offer useful context on how market narratives are translating into allocation preferences, risk appetite and implementation choices. ARC Research,¹ now part of S&P Dow Jones Indices, tracks these views through its quarterly Market Sentiment Survey. In its 63^rd edition, the most recent survey reflects firms’ 12‑month outlook across major asset classes and implementation choices, offering insights into how private wealth managers are thinking about market exposure, risk budgeting and implementation choices.

Sentiment toward cash and equities increased at the expense of bonds and alternatives while, at the headline level, respondents remained most constructive on equities.

Beneath the Headline Results: Sectors, Bonds, Inflation and Alternatives

Additional highlights from the survey of particular relevance for CIOs include the following.

• Equity Sectors: Health Care and Energy (which were previously the most supported) saw declining support, while Information Technology and Consumer Discretionary (both had been exposed to significant mega-cap growth) garnered support. Industrials saw a notable gain in net sentiment.
• Fixed Income: Respondents were most negative on conventional government bonds (net sentiment was cited at -24 in the commentary). In contrast, sentiment regarding the classic route for inflation protection, index-linked bonds, improved materially.
• Alternatives/Real Assets: Hard commodities recorded the strongest support among sub-asset classes (net sentiment was referenced at 75), while gold saw a notable decline in net sentiment (down 20 points to 18).

Community Question

In addition to the main survey, we also ask a “community question.” This quarter, the focus was on portfolio implementation across asset classes, and the results for equities are highlighted in Exhibit 2.

The implementation results point to a continued shift toward vehicle-led portfolio construction, with passive and active building blocks now firmly embedded in how many firms access public markets—particularly in equities. Direct holdings remain a minority approach across most asset classes.

Exhibit 3 shows the reasons respondents cited for using passive allocations. Cost remains relevant, but the responses also point to diversification- and performance-related considerations.

This mix is consistent with passive vehicles such as index funds and ETFs being increasingly used as strategic “default” exposures, although a range of other use cases, including short-term tactical or liquidity needs, are likely to remain well represented. In this sense, the responses show some similarities with the patterns observed among some of the largest U.S. asset owners, as a recent post has highlighted.

How to Access the Full Report

The full survey includes the detail behind these headlines, including the full regional, sector and currency cuts and conviction shifts versus prior periods. Access to the full report is only for investment managers who complete the survey. If you are an investment manager and would like to be included in future surveys, or if you are interested in becoming a contributor to the ARC Wealth Indices, find out more on our website. Please note that survey results reflect respondent opinions at the time of the survey and positioning expectations, not investment advice.

¹ ARC Research, now part of S&P Dow Jones Indices, produces the ARC Wealth Indices: a range of peer benchmarks built from real-world, net-of-fees discretionary portfolio outcomes, grouped by realized risk. They provide wealth firms and oversight stakeholders a practical, outcome-focused reference point for governance, performance explanation and peer comparison.

What’s driving growth in ETF usage among insurers to all–time highs? S&P DJI’s Anu Ganti and Nick Didio share key takeaways across asset class, company size and geography from their latest research, “ETFs in Insurance General Accounts – 2026.” 

Global equities showed solid gains in the first half of 2026, supported by strong earnings in semiconductor-related industries. Conventional benchmarks rose across regions, with both global and developed markets posting double-digit gains, while emerging markets advanced at a slower pace, partly reflecting U.S. dollar strength. MENA equities continued to lag, weighed down by geopolitical tensions (see Exhibit 1).

Shariah-compliant equities outperformed conventional benchmarks across most major regions. The S&P Global BMI Shariah rose 15.3%, outperforming its benchmark, the S&P Global BMI, by 3.5%, while the Dow Jones Islamic Market (DJIM) World Index outperformed the Dow Jones Global Index by 2.9%. In developed markets, Shariah indices also modestly outpaced conventional peers, while the most pronounced gains were in emerging markets, where excess performance reached 7.0%. The MENA region remained the exception, showing modest underperformance (see Exhibit 1). See the Q2 2026 S&P Shariah and Dow Jones Islamic Market Indices Scorecard for more performance details.

Drivers of Shariah Index Performance in H1 2026

Sector positioning was a key driver of relative performance (see Exhibit 2). Information Technology—accounting for over 45% of the S&P Global BMI Shariah—rose 30.9% and contributed more than 12.2% to the index’s overall performance. Communication Services also supported relative gains, benefiting from stronger performance differentials versus conventional counterparts.

Conversely, structural underweights created headwinds. Limited weight in Financials and Utilities detracted 1.0% and 0.3% from excess performance, respectively, due to both underperformance versus conventional counterparts and lower weights.

Global Sukuk Posted Modest Gains

In fixed income, global markets experienced increased volatility amid sharp moves in oil prices and related uncertainties around inflation and policy rates. Investment grade bonds and sukuk performed modestly, with the iBoxx $ Overall Index and Dow Jones Sukuk Index (ex-Reinvestment) rising 0.6% and 0.7%, respectively. Yield levels remained comparable at around 5%, with sukuk offering higher spreads but shorter duration profiles (see Exhibit 3).

This article was first published in IFN Volume 23 Issue 29 dated July 22, 2026.

This content may be AI-assisted and is composed, reviewed, edited, and approved by S&P Global.