Wilshire 5000 Total Market Index (TMWX)

The Wilshire 5000 Total Market Index, commonly referred to simply as the Wilshire 5000, is a market capitalization-weighted index that aims to measure the performance of all U.S.-headquartered equity securities with readily available price data. It is named after the Wilshire Associates, the investment management, consulting, and technology firm that created it. Established in 1974, the Wilshire 5000 is often used as a benchmark to represent the entirety of the U.S. stock market.

Background and Creation

The Wilshire 5000 was created by Wilshire Associates in 1974 with the objective of providing a comprehensive measure of the U.S. equity market. Unlike other indices that focus on specific sectors or types of stocks, the Wilshire 5000 includes a broader range of equities, thereby representing a fuller picture of market performance. Although it originally began with approximately 5,000 stocks, the number of constituents has fluctuated, and as of 2020, it includes about 3,500-4,000 stocks due to market changes such as delistings, mergers, and acquisitions.

Methodology

Eligibility Criteria

The Wilshire 5000 includes any publicly traded company that meets the following criteria:

• The company is headquartered in the United States.
• The stock is listed on a major U.S. stock exchange, including the NYSE, NASDAQ, or NYSE American.
• The stock has readily available price data.

Calculation

The Wilshire 5000 is a market capitalization-weighted index. This means that each stock’s influence on the index is proportional to its market value. The formula for calculating the market cap of a company is:

[ \text{Market Cap} = \text{Share Price} \times \text{Number of Outstanding Shares} ]

The index value is then calculated by summing up the market capitalization of all included stocks and dividing by a divisor, which normalizes the index value.

Rebalancing

The index is rebalanced monthly to account for new listings, delistings, and corporate actions such as mergers and acquisitions. This ensures that the index remains up-to-date and accurately reflects the current state of the market.

Components of the Wilshire 5000

The Wilshire 5000 aims to be the broadest stock market index and includes a variety of stock types:

• Large-cap stocks: Major companies with large market capitalizations, such as Apple, Microsoft, and Amazon.
• Mid-cap stocks: Companies with moderate market capitalizations that are often growing and expanding.
• Small-cap stocks: Smaller companies that may offer higher growth potential but come with higher risk.
• Micro-cap stocks: Very small companies that are often newer to the market and carry significant risk.

Comparison with Other Indices

The Wilshire 5000 is unique in its breadth, but it is often compared to other major indices such as the S&P 500, the Dow Jones Industrial Average (DJIA), and the NASDAQ Composite.

S&P 500

The S&P 500 consists of 500 of the largest U.S. companies and is also market-cap-weighted. It focuses on companies with large market capitalizations and is less inclusive than the Wilshire 5000.

Dow Jones Industrial Average (DJIA)

The DJIA includes 30 large publicly-owned companies and is price-weighted rather than market-cap-weighted. This means that companies with a higher stock price have more influence on the DJIA’s performance.

NASDAQ Composite

The NASDAQ Composite includes over 3,000 stocks listed on the NASDAQ exchange. Because the NASDAQ has a heavy concentration of technology companies, the NASDAQ Composite can be more tech-focused compared to the Wilshire 5000.

Uses and Applications

Benchmarking

Financial analysts and portfolio managers often use the Wilshire 5000 as a benchmark to measure the performance of individual stocks, mutual funds, and other investment vehicles. Because it includes a broad range of securities, it is considered a robust indicator of the overall market.

Investment Products

Various mutual funds and exchange-traded funds (ETFs) aim to replicate the performance of the Wilshire 5000. Examples include:

• Vanguard Total Stock Market ETF (VTI): Tracks the CRSP US Total Market Index, closely related to the Wilshire 5000.
• iShares Russell 3000 ETF (IWV): Tracks the Russell 3000 Index, which includes the 3,000 largest U.S. stocks and is similar in breadth to the Wilshire 5000.

Macroeconomic Analysis

Economists and policymakers may look at the Wilshire 5000 to gauge the health of the U.S. economy. Because the index includes companies from various sectors, it can provide insights into the performance of different economic segments.

Performance

The performance of the Wilshire 5000 correlates closely with the overall U.S. equity market. Historically, it has shown significant growth, particularly during bull markets, but also experiences declines during bear markets.

Historical Performance

1980s-1990s

During the 1980s and 1990s, the Wilshire 5000 saw substantial growth due to economic expansion, technological advancements, and favorable market conditions.

Dot-com Bubble and Burst (2000-2002)

In the early 2000s, the index experienced a significant decline during the dot-com bubble burst, reflecting the losses in technology stocks.

Global Financial Crisis (2007-2009)

The Wilshire 5000 experienced another sharp decline during the global financial crisis, losing considerable value as markets around the world fell.

Post-crisis Recovery and Growth (2010-2020)

The index saw one of its most robust periods of growth following the financial crisis, driven by an extended bull market, technological advancements, and strong corporate earnings.

Criticisms and Limitations

Over-representation of Large Companies

One criticism of the Wilshire 5000 is that it becomes very top-heavy due to its market-cap-weighted nature. Large companies like Apple and Microsoft have disproportionately large influence on the index.

Inclusion Criteria

The requirement that companies be headquartered and listed in the U.S. excludes some globally significant stocks, which can limit the index’s comprehensiveness.

Maintenance and Rebalancing

Constant maintenance, including monthly rebalancing, ensures the index stays current, but it also means it may not fully capture short-term market movements and inefficiencies.

Real-time Tracking and Data Access

The Wilshire 5000 can be tracked in real-time via various financial news platforms and stock market websites. Investors and analysts who wish to follow the index closely can rely on reputable data providers such as Bloomberg, Reuters, and Wilshire Associates themselves.

Official Website

For more detailed information on the Wilshire 5000, you can visit the official Wilshire Associates website at Wilshire Associates.

Conclusion

The Wilshire 5000 Total Market Index is an essential tool for understanding the U.S. equity market. Its comprehensive nature makes it a valuable benchmark for investors, financial analysts, and policymakers. While it has its criticisms, particularly concerning the over-representation of large companies, it remains one of the most widely-used indices for capturing U.S. market performance.