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Beacon Equity Research

Wilshire 5000 Index

Overview

The Wilshire 5000 is considered the “total market index”. It is designed to track the value of the entire stock market in one index. It was started in 1974 by Wilshire Associates, soon after computers made the daily computation of such a large index possible. Though it is the broadest based index, and probably the most accurate reflection of the market, it not frequently used to define the market’s return. The reason for this is that it is considered “too broad” a definition of the market. Most practitioners will use the S&P 500 as a proxy for the overall market, since it encompasses 70% of its market value. The other 30%, or smaller stocks are generally considered to be represented by the Russell 2000 index of small cap stocks.

Composition

The Wilshire 5000 is comprised of virtually every stock that meets three criteria: 1) The firm’s headquarters are based in the U.S., 2) The stock is actively traded on a U.S. exchange, and 3) The stock has widely available pricing information (this disqualifies bulletin board or OTC stocks). Though the index was started with, and the name implies 5000 firms, it actually contains around 6700 today. The index is market cap weighted, so the firms with the highest market value carry the most weight in the index.

In the chart below you can see that the top 10 firms make up a very disproportionate 17% of the index.

CompanyTickerWeight (%)
MicrosoftMSFT7.9%
QualcommQCOM5.4%
IntelINTC5.1%
Cisco SystemsCSCO4.8%
eBayEBAY3.1%
AmgeAMGN3.1%
DellDELL2.8%
Nextel CommunicationsNXTL2.8%
ComcastCMCSA2.4%
OracleORCL2.2%
This table shows the top ten sectors represented in the Wilshire 5000 Index:
Sector% of Index
Computer Hardware37.2%
Computer Software19.3%
Consumer Services14.6%
Healthcare13.7%
Media5.4%
Business Services4.2%
Telecommunications3.0%
Industrial Materials2.3%
Energy0.3%

Positives

The Wilshire 5000 is a very easy way to determine the overall path of the U.S. economy. Since it includes every public firm, it is more representative of the entire market.

Drawbacks

Because it is so diverse, it is impossible to tell which sectors are moving the market (technology, industrial, small cap, large cap, etc.). Many people do not own the smaller stocks that this index holds, so it may not accurately represent the portfolios of many investors.

How can I trade this?

Vanguard has a publicly traded ETF, called a VIPER (VTI), which tracks the performance of this index. This ETF is highly recommended because of the low 0.15% expense ratio associated with it. Vanguard (VTSMX), as well as other firms, also have mutual funds which capture the returns of the broad market.

Websites

Wilshire 5000 Homepage
http://www.wilshire.com/Indexes/Broad/

Morningstar ETF homepage
http://www.morningstar.com/Cover/ETF.php

Vanguard VIPER Homepage
http://flagship4.vanguard.com/VGApp/hnw/FundsVIPER