Constituents are selected by a committee, and this is the fact almost every consumer description gets wrong. The index is not a mechanical list of the 500 largest U.S. companies by market value. Securities filings by several unrelated firms say so directly. One states that the 500 companies are not the 500 largest companies listed on the New York Stock Exchange, and that S&P chooses companies with an aim of achieving a distribution by broad industry groupings that approximates the distribution of those groupings in the U.S. equity market. Another puts it more bluntly still: the index does not contain the 500 largest stocks as measured by market capitalization, and while many of its members are among the largest, it also includes some relatively small companies that are established within their industry group.
The committee is a real body with a described job. Filings describe an index committee, made up of full-time professional staff of the index sponsor, that meets regularly to review pending corporate actions affecting constituents, compare the index's composition against the market, consider candidates for addition, and revise index policy including the rules for selecting companies. Eligibility criteria narrow the field and the committee chooses within it, with continued inclusion also at its discretion. So a large company can meet every criterion and still not be added, and additions and removals are normally announced at least three business days in advance.
Turnover is real but modest. One prospectus records that there were 23 company changes to the index during 2025, which is a useful order of magnitude: the membership is stable enough to be a durable benchmark and fluid enough that the list is not the one from a decade ago. One counting quirk follows from all this. The index holds 500 companies, but it can carry more than 500 trading lines, because some companies admitted before mid-2017 are represented by more than one share class. An investor who counts the holdings in a tracking fund and finds a few more than 500 has not found an error.
Float adjustment is where the weighting quietly departs from the headline market cap. Counting only shares available to investors means a company whose founders, family or a government hold a large block is smaller inside the index than its total market value suggests. A third fund family's SEC filing glosses float-adjusted market capitalization as the amount of stock available for trading by the general public, which is the plain-English version. The practical consequence is that two companies with identical headline market values can carry noticeably different index weights.
It is a large-company index, and calling it "the market" is a habit rather than a description. Five hundred companies, all listed on national exchanges and spanning a broad range of industries, is a large slice of U.S. equity value and it is not the U.S. equity market. Small and mid-sized companies are excluded by construction, and non-U.S. companies are outside its scope entirely. A total-market index is the broader alternative, and an investor comparing a portfolio's return to the S&P 500 is comparing it to large U.S. companies specifically.
Price return versus total return is the distinction that explains a confusing statement. The figure quoted in the news is a price index: it tracks the value of the constituent shares and does not add the dividends those companies pay. Fund documents make the separation visible, since the standard SPDR trust states its objective as corresponding to the price and yield performance of the index, and the historical table in that prospectus reports the change in the index for each calendar year in one column and the year-end yield, computed by dividing aggregate cash dividends by the aggregate market value of the stocks in the index, in another. So a fund holding the index and passing dividends through can report a total return above the index change, and that is not tracking error. It is the dividends. Insurance and annuity products that credit interest linked to an index typically use the price version, which is one of the ways their crediting differs from owning the index.
Concentration is an output of the design, not a decision. Because weights follow market value, a period in which a handful of companies grow much faster than the rest mechanically raises their combined share of the index, and the index becomes less diversified without any committee choosing that. The reverse happens when leadership broadens. An investor who owns an index fund owns whatever concentration the market has produced at that moment, which is a feature worth knowing rather than a flaw to correct.
A note on figures. S&P Dow Jones Indices publishes the authoritative methodology for the index, and the descriptions above are drawn from registration documents filed with the Securities and Exchange Commission by unrelated firms whose products track it, each of which carries disclosure liability for what it says. This page deliberately prints no index level and no market-capitalization threshold for eligibility. The level changes every trading day, and the eligibility threshold is revised periodically, so anyone who needs either should take it from the current methodology document rather than from a definition written on some earlier date.
