S&P 500 Risk & Return Attribution (2005-2025*)
We sought to look back at twenty years data for the S&P 500 to study the source of return by company risk category. As the graph and tables that follow show, the results were eye opening.
Key Takeaways
- 83% of the S&P 500’s 2023-2025 return was driven by high-risk stocks. Users of the index for benchmarking purposes must be aware the index return composition has shifted dramatically toward risk. Practitioners may want to revisit whether the benchmark remains aligned with investor risk management objectives.
- A look back over the past two decades reveals 2023-2025 returns as an outlier. Most of the time, rising markets’ leadership is shared between higher and lower risk stocks. There is balance. Since 2023, the balance has been lost. Returns have been skewed toward high risk resulting in lopsided, one-way leadership.
- The concentrated high-risk 2023-2025 rally has been an anomoly and raises risk of potential mean reversion. A significant “gap” has emerged between the value of high-risk and low-risk stocks.
Where Are S&P 500 Returns Coming From?
S&P 500 Raw Data (2005-2025*)
This table shows how S&P 500 returns have evolved since 2005. It breaks the index into two cohesive groups of stocks: Low Risk with betas below 1 and High Risk with betas above 1. The sum of the first two columns add up to the overall S&P 500 total return. The last two columns isolate the returns for each risk category. Note that since 2023, 83% of the overall S&P 500 return has come directly from high risk stocks (for the sake of simplicity, we use basic math – combining the three most recent years of high risk contribution to return and dividing it by the combined total returns for the same time period).
| Date | High Risk Contribution to Return (Beta>1) | Low Risk Contribution to Return (Beta<1) | S&P 500 Total Return | Total Return High Risk (Beta>1) | Total Return Low Risk (Beta<1) |
|---|---|---|---|---|---|
| 2025* | 17.3% | 1.5 | 18.8 | 29.9 | 3.5 |
| 2024 | 19.2 | 5.9 | 25.0 | 33.6 | 14.0 |
| 2023 | 24.0 | 2.3 | 26.3 | 49.3 | 5.4 |
| 2022 | -14.5 | -3.7 | -18.2 | -25.2 | -9.7 |
| 2021 | 14.4 | 14.3 | 28.7 | 29.0 | 27.9 |
| 2020 | 8.3 | 10.1 | 18.4 | 26.3 | 12.5 |
| 2019 | 19.4 | 11.9 | 31.3 | 34.0 | 27.7 |
| 2018 | -2.9 | -1.5 | -4.4 | -5.8 | -3.2 |
| 2017 | 14.4 | 7.3 | 21.8 | 26.9 | 15.8 |
| 2016 | 7.2 | 4.7 | 11.9 | 15.2 | 9.1 |
| 2015 | -0.6 | 1.9 | 1.3 | -1.1 | 4.2 |
| 2014 | 4.8 | 8.9 | 13.7 | 9.9 | 17.2 |
| 2013 | 16.8 | 15.4 | 32.2 | 36.8 | 28.2 |
| 2012 | 10.0 | 5.9 | 15.9 | 19.9 | 12.2 |
| 2011 | -3.7 | 5.7 | 2.0 | -6.6 | 11.3 |
| 2010 | 8.8 | 6.3 | 15.1 | 20.3 | 11.2 |
| 2009 | 13.8 | 12.5 | 26.2 | 36.4 | 20.6 |
| 2008 | -19.5 | -17.6 | -37.0 | -44.8 | -31.5 |
| 2007 | 4.5 | 2.3 | 6.7 | 9.2 | 4.6 |
| 2006 | 6.9 | 8.9 | 15.8 | 14.1 | 17.4 |
| 2005 | 2.1 | 3.8 | 5.9 | 5.5 | 6.7 |
| Annual Return | 10.8% | 12.4% | 8.9% | ||
| Annual Risk** | 16.9% | 22.4% | 13.5% | ||
| Alpha | -0.9% | +0.8% | |||
| Beta | 1.3 | 0.7 |
* YTD through December 10, 2025
** Volatility (Standard Deviation of Returns)
Source: WCA, Bloomberg
High Beta Has Outperformed Overall, But With Much Higher Risk
Higher risk stocks generated ~1.6% more annual return than the S&P 500 over the full period (2005 – 2025), but at the cost of 30% more risk. After factoring in risk, the returns of the S&P 500 and low risk stocks are fairly comparable (near 0.63-0.65). However, high risk stocks lag far behind after factoring in risk (return per unit of risk is only 0.55).
| Index | Annual Return | Volatility (Risk)* | Return / Risk |
|---|---|---|---|
| S&P 500 | 10.8% | 16.9% | 0.63 |
| High Risk (Beta > 1) | 12.4% | 22.4% | 0.55 |
| Low Risk (Beta < 1) | 8.9% | 13.5% | 0.65 |
* Annualized volatility
Source: WCA, Bloomberg
Asymmetry Rules: High Beta Amplifies Losses and Gains
Even after the massive high-beta runup from 2023-2025, regressing against the S&P 500 for 2005-2025 reveals:
- High risk companies: implied Beta = 1.3, Alpha = -0.9%
- Low risk companies: implied Beta = 0.7, Alpha = +0.8%
A core tenet of financial theory suggests holding higher beta (risky) stocks should yield higher returns, but empirical data often shows high-beta stocks often underperform low-beta stocks. To read more about this phenomenon, we recommend a paper titled “Betting Against Beta” by New York Unversity Finance Professor Aswath Damodaran. While the paper was written over a decade ago, it appears that even in the bull market that followed the paper’s publishing, betting against high-risk and high-beta proved to hold water.
In the Short-Run, Market Regime is Key
This should come as no surprise. Lower risk stocks tend to do better in difficult markets. Higher risk stocks tend to do better in rising markets.
| Market Regime (2023-2025) | S&P 500 Average Annual Return | High Risk (Beta>1) Average Annual Return | Low Risk (Beta<1) Average Annual Return | Winner |
|---|---|---|---|---|
| Up Markets (18) | +17.6% | +21.6% | +13.9% | High Risk (+7.7%) |
| Down Markets (3) | -19.9% | -25.3% | -14.8% | Low Risk (+10.5%) |
Source: WCA, Bloomberg
Recent Years: A Dramatic Shift Toward High Risk
The Current Period in Context
As you can see below, the 2023–2025 window is off the chart for high-risk, raising the probability of mean reversion.
High Risk Stocks’ Rally Exposes Significant Gap
(Mean Reversion Risk High)
This is not a normal market. Over the past three years, the performance gap between high-risk and low-risk stocks has blown out. Where a relatively steady relationship used to exist between higher and lower risk investing styles, the risk-on market of 2023-2025 has created a large gap. The higher risk index (blue area) below appears positioned to revert to the mean as valuations become significantly stretched.
Conclusion
We performed this risk and return attribution of one of the most common indices to help us better understand what kind of risks are undertaken when investing in a strategy that tracks the index. We discover that it is helpful to break the S&P 500 into two distinct types of investments—high risk (high beta) and low risk (low beta). In this way, we can study what drives performance of the index from one period to another.
We find that it is critical to understand that the S&P 500 is not a static index with static risk dynamics. Instead it is a continually changing benchmark with massive shifts in risk composition. The relative proportion of these two investment types shift over time without regard to any one individual investor’s goals, risk tolerance, or circumstances. Over time, however, there is evidence that the two types of investments obey basic logic of mean reversion.
We also see that the most recent stretch of returns for the S&P 500 skews massively toward high risk style companies which accounted for 83% of the S&P 500 index’s return since 2023. This shift is historic and substantial, measuring a several standard deviation move away from the historic average. Such a move suggests that mean reversion risk is high when comparing high versus low beta strategies.
Kevin R. Caron, CFA
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Chad Morganlander
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Steve Lerit, CFA
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Portfolio Manager
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S&P 500 — The Standard & Poor’s 500 Index is a capitalization-weighted index that is generally considered representative of the U.S. large capitalization market.
Indices are unmanaged, and it is not possible to invest directly in an index. All benchmark returns presented are provided to represent the investment environment existing during the time periods shown. Actual investment performance will vary due to fees and expenses. For comparison purposes, the benchmarks include the reinvestment of income. The benchmarks are unmanaged and unavailable for direct investment.
The S&P 500 High Beta Index measures the performance of 100 constituents in the S&P 500 that are most sensitive to changes in the market. Constituents are weighted relative to their level of market sensitivity, with each stock assigned a weight proportional to its beta.
The S&P 500 Low Volatility Index measures performance of the 100 least volatile stocks in the S&P 500. The index benchmarks low volatility or low variance strategies for the U.S. stock market. Constituents are weighted relative to the inverse of their corresponding volatility, with the least volatile stocks receiving the highest weights.
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Standard & Poor’s 500 Index (S&P 500) is a capitalization-weighted index that is generally considered representative of the U.S. large capitalization market.
S&P Global (SPGI) is a leading American provider of financial information, analytics, and credit ratings, headquartered in New York, NY. It operates major divisions including S&P Global Ratings, S&P Global Market Intelligence, S&P Global Commodity Insights, S&P Global Mobility, and S&P Dow Jones Indices.
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The S&P 500 Value Index measures constituents from the S&P 500 that are classified as value stocks based on three factors: the ratios of book value, earnings and sales to price.
The S&P 500 Equal Weight Index is the equal-weight version of the widely regarded Standard & Poor’s 500 Index, which is generally considered representative of the U.S. large capitalization market. The index has the same constituents as the capitalization-weighted S&P 500, but each company in the index is allocated a fixed weight of 0.20% at each quarterly rebalancing.
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