Fact-checked by Grok 2 weeks ago

Value Line Composite Index

The Value Line Composite Index (VLCI) is a broad comprising approximately 1,700 companies selected from those covered in The Investment Survey, representing equities listed on major North American exchanges such as the (NYSE), American Stock Exchange (AMEX), , , and over-the-counter (OTC) markets, while excluding closed-end funds. The index provides a gauge of overall market performance through two variants: the original Geometric Composite Index, which is equally weighted and uses a geometric average, and the , which employs an of daily changes. Originated by Arnold Bernhard, founder of in 1931, the Geometric Composite Index was launched on June 30, 1961, as an equal-weighted measure where daily changes are calculated by multiplying the price ratios of all stocks and raising the result to the power of 1/n (with n being the number of stocks), offering a of compounded returns. The Arithmetic Composite Index followed on February 1, 1988, providing a simpler of individual changes to better reflect arithmetic movements. Both indices are published weekly in The Value Line Investment Survey, a flagship research publication known for its proprietary rankings and long-term performance track record. Unlike capitalization-weighted indices such as the , the VLCI's equal weighting ensures that smaller companies have the same influence as larger ones, making it a valuable tool for assessing broad market trends across diverse sectors and market capitalizations in . It serves as a for investors and managers, particularly those utilizing Value Line's Timeliness and Safety rankings, and has historically demonstrated resilience in tracking equity performance amid varying economic conditions.

Overview

Definition and Purpose

The Value Line Composite Index is an equally weighted stock market index comprising approximately 1,700 companies listed on the (NYSE), American Stock Exchange (AMEX), , , and over-the-counter (OTC) markets. It provides a broad representation of North American equity performance through this diverse selection of stocks. Developed by Inc., the index functions as a key tool for research, offering a comprehensive gauge of large-, mid-, and small-cap across major North American exchanges. Its primary purpose is to serve as an unbiased within Value Line's Investment Survey reports, enabling investors to evaluate overall trends and individual relative to the broader universe. The index was initially released on June 30, 1961, under the name Value Line Geometric Composite Index, marking an early effort to create an accessible measure of aggregate activity. This foundational version emphasized geometric averaging to reflect true breadth without distortion from larger companies.

Key Characteristics

The Value Line Composite Index is distinguished by its equal scheme, where each of the approximately 1,700 constituent contributes equally to the index's , or 1/N of the total, irrespective of individual . This approach provides a balanced representation of the broader , emphasizing the performance of smaller companies alongside larger ones and avoiding the dominance of mega-cap seen in capitalization-weighted indices. A key feature is the use of geometric averaging in its original formulation, known as the Value Line Geometric Composite Index (VALUG), which calculates daily returns by geometrically averaging price changes across all stocks to approximate the stock performance and measure compounded returns over time. This contrasts with arithmetic averaging methods employed in many other indices, as the geometric method better reflects the experience of a buy-and-hold by accounting for the of returns. The index covers a diverse array of sectors, including large-, mid-, and small-cap traded on major North American exchanges, encompassing roughly 90% of the total U.S. and excluding closed-end funds. This broad universe, typically comprising 1,675 to 1,700 , ensures comprehensive exposure to the North American landscape while maintaining focus on actively traded issues. Since its inception in , the index has offered both geometric and arithmetic versions, with the arithmetic variant (VALUA) introduced on , , to provide an alternative benchmark that arithmetically averages returns for a closer of the average stock's performance in an equal-dollar . The geometric version remains the primary long-term benchmark due to its original design and emphasis on compounded growth.

History

Creation and Early Development

Value Line Inc. was founded in 1931 by Arnold Bernhard in the wake of the 1929 stock market crash and the ensuing bear market. Bernhard, having previously worked as an analyst at , aimed to deliver independent, objective research untainted by conflicts of interest, such as those arising from rating fees paid by companies. The company established itself through the Investment Survey, a that began publishing detailed stock analyses and reports shortly after its founding to assist individual investors in evaluating equities. In 1961, Value Line launched the Value Line Composite Index—originally named the Value Line Geometric Composite Index—on June 30, setting its base value at 100. This index was developed as an integral component of the company's services, specifically to provide an unbiased for assessing overall performance and supporting Value Line's proprietary stock ranking methodology. By using geometric averaging, the index emphasized compounded returns, offering a more realistic representation of investor experiences over time compared to arithmetic means. The index was introduced within the framework of the Investment Survey, which by then had become a of the firm's offerings, and it initially encompassed a curated selection of drawn from major exchanges. Coverage expanded rapidly in the early years, aligning with the growing scope of the Survey's analyses across diverse industries and market segments.

Evolution and Milestones

Following its initial launch as the Geometric Composite Index in 1961, the Value Line Composite Index evolved through key integrations and expansions starting in the 1970s. The Timeliness Rank system, introduced by in 1965, incorporated the Composite Index as a central to evaluate and predict the relative price performance of individual stocks against the broader market over the subsequent 6 to 12 months. This integration enhanced the index's role in Value Line's proprietary stock selection and forecasting methodology, enabling investors to gauge potential outperformance based on quantitative models of , price momentum, and financial strength. In the 1980s, ongoing adjustments expanded the index's coverage to better capture evolving U.S. market dynamics, including the growing prominence of Nasdaq-listed companies alongside those from the NYSE and American Stock Exchange. This broadening ensured the index maintained its equal-weighted representation of a significant portion of the investable universe, adapting to the increasing diversification and liquidity of over-the-counter markets. A pivotal came in 1982, when the Composite Index became the first broad to trade as a on the Kansas City Board of Trade, introducing innovative derivatives trading that linked futures markets directly to comprehensive equity benchmarks and influenced the development of subsequent index-based financial products. To address varying analytical preferences, Value Line introduced the Arithmetic Composite Index in February 1988 as a complement to the original Geometric version, employing an arithmetic averaging method to better track average portfolio performance in certain investment strategies.

Methodology

Calculation Methods

The Value Line Composite Index employs two distinct calculation methods: the geometric composite index and the arithmetic composite index, both designed to track the performance of approximately 1,700 equally weighted using daily closing prices. The geometric method, introduced on June 30, 1961, computes the index level by chaining the of individual stock price relatives to the prior period's value, capturing the compounded growth across the and approximating the stock's performance. This is expressed mathematically as \text{VLCI}_t = \text{VLCI}_{t-1} \times \left( \prod_{i=1}^N \frac{P_{i,t}}{P_{i,t-1}} \right)^{1/N}, where \text{VLCI}_t is the index value at time t, P_{i,t} is the closing price of stock i at time t, P_{i,t-1} is the prior closing price, and N is the number of stocks in the index. The arithmetic method, launched on February 1, 1988, determines the index by calculating the arithmetic mean of the daily percentage price changes across all stocks and applying it to the previous index level, thereby reflecting the average price movement and simulating an equally weighted portfolio's return. This approach yields values that are typically higher than the geometric counterpart due to the influence of volatility in averaging returns. Although the index is a price-only measure without direct dividend incorporation, corporate actions such as dividends may indirectly affect price continuity through market adjustments. The formula for the daily change is the average of individual percentage changes: \Delta \text{VLCI}_t = \frac{1}{N} \sum_{i=1}^N \frac{P_{i,t} - P_{i,t-1}}{P_{i,t-1}}, with the updated index level given by \text{VLCI}_t = \text{VLCI}_{t-1} \times (1 + \Delta \text{VLCI}_t). Both variants are recalculated daily based on closing prices to ensure timely reflection of market movements, with the stock universe maintained to support equal weighting through periodic reviews. Quarterly rebalancing occurs to adjust for changes in the constituent universe, preserving the equal-weight structure without altering individual stock weights mid-period. Corporate actions, such as stock splits, are handled via price adjustments to maintain continuity in price relatives, while delistings result in immediate removal from the index without weight redistribution to remaining stocks.

Weighting Scheme

The Value Line Composite Index employs a strict equal-weighting scheme, assigning each of its approximately 1,700 constituent stocks an identical weight of 1/N, where N represents the total number of stocks included. This approach ensures that every stock, regardless of its or trading volume, contributes equally to the index's overall performance calculation. Unlike market-capitalization-weighted indices such as the , where larger firms exert dominant influence due to their size, the Value Line Composite Index's equal-weighting method prevents overrepresentation by mega-cap companies and promotes a balanced reflection of broader dynamics, including small- and mid-cap . The equal weights are maintained through the index's daily computation, which applies geometric or averaging to the changes of all constituents, inherently resetting relative influences each day without reliance on absolute levels. For portfolios seeking to replicate the index, periodic rebalancing is necessary to restore equal dollar allocations after market-driven drifts, though this introduces implicit transaction costs from buying and selling to adjust holdings. This scheme also supports sector balance by equally incorporating from diverse industries within 's broad coverage universe, reducing the risk of undue emphasis on any single economic sector.

Components

Stock Selection Criteria

The Composite Index comprises approximately 1,700 actively traded common covered in The Investment Survey, selected for their broad investor interest and representation of about 90% of U.S. . These are companies listed on major North American exchanges such as the (NYSE), , American Stock Exchange (AMEX), (TSX), and over-the-counter (OTC) markets. Eligibility requires at least two years of and stock price history to enable comprehensive analysis and ranking, such as the Timeliness rank. The index excludes closed-end funds to maintain focus on common equities, while emphasizing through the selection of actively traded securities. An ongoing review process ensures the index's integrity, with weekly updates to coverage; stocks are removed for reasons including delistings, mergers, acquisitions, bankruptcies, or insufficient earnings quality, and replaced by other qualifying actively traded stocks from the broader potential universe. To promote diversification, Value Line groups covered stocks into roughly 100 industries, providing representation across major sectors like technology, finance, and industrials without imposing fixed quotas on any particular group.

Coverage and Universe

The Value Line Composite Index comprises approximately 1,700 stocks, drawn from the most prominent North American exchanges, and accounts for about 90% of the total U.S. equity market capitalization. This extensive universe ensures broad market breadth, capturing large-, mid-, and small-cap companies that represent the majority of investable U.S. equities. The index's composition spans multiple exchanges, with the majority of stocks listed on the (NYSE) and , supplemented by smaller allocations from the (formerly AMEX), (TSX), and over-the-counter (OTC) markets. This multi-exchange approach provides comprehensive coverage of both established blue-chip firms and innovative growth companies, reflecting the diversity of the North American equity landscape. In terms of sector distribution, the index maintains balanced exposure across more than 90 industries, grouped into major economic sectors, to avoid overconcentration in any one area and promote representative market tracking. This structure has evolved over time, particularly with the expanded inclusion of Nasdaq-listed stocks in the post-1990s era, which broadened representation of and other emerging sectors.

Performance and Usage

Historical Performance Metrics

The Value Line Composite Index has delivered long-term returns reflecting its equal-weighted approach to tracking roughly 1,700 stocks across major U.S. exchanges. The index has shown alignment with broader market fluctuations. Its inclusion of contributes to total return calculations, providing a steady income component that enhances compounded growth over time. In notable historical periods, the index demonstrated resilience during inflationary environments such as the amid rising prices and economic uncertainty. During the , the index suffered a peak-to-trough drawdown comparable to major benchmarks, with recovery to pre-crisis levels achieved in the early . These metrics underscore the index's role as a diversified gauge of mid- and small-cap influences within the U.S. equity landscape.

Applications in Investment Analysis

The Value Line Composite Index serves as a critical in Value Line's proprietary Timeliness Ranking system, which evaluates approximately 1,700 covering 90% of U.S. daily trading . are assigned ranks from (highest) to 5 (lowest) based on their projected price relative to the index over the next 6 to 12 months, with ranks and 2 indicating expectations of outperformance against the Composite Index. This system, developed in 1965, uses the Geometric Composite Index (VALUG) as the primary reference for scoring, incorporating factors such as relative earnings and 10-year price and earnings trends to predict short-term relative strength. Investors rely on these rankings to identify likely to exceed the index's , facilitating targeted selection for intermediate-term strategies. In relative strength analysis, the Composite Index provides a standardized baseline for assessing individual and over extended periods. Analysts compare a 's or 's price movements to the index's trajectory, often using charts that track ratios over up to seven years to gauge outperformance or underperformance. A rising relative strength line signals superior compared to the broader Value Line universe, aiding in the identification of resilient securities during market fluctuations. This approach is particularly valuable for momentum-oriented investors seeking to quantify how specific holdings diverge from the equal-weighted market representation embodied by the index. For portfolio construction, the index's equal-weighted —exemplified by the Arithmetic Average (VALUA)—offers a model for strategies that mitigate large-cap dominance, appealing to investors aiming for diversified exposure across mid- and small-cap . By simulating an equal-dollar allocation across its constituents, the VALUA estimates the performance of balanced , helping managers construct holdings that avoid concentration risks inherent in market-cap-weighted benchmarks. This structure supports the creation of value-focused , where equal weighting enhances the influence of undervalued smaller firms. The index integrates seamlessly with Value Line's weekly Investment Survey, acting as the foundational reference for Safety and Technical rankings. Safety ranks, derived from price stability and financial strength metrics relative to the Value Line universe, classify stocks from 1 (safest) to 5 (riskiest), with the Composite Index providing the comparative risk baseline across the covered market. Technical ranks, focusing on 3- to 6-month price predictions, similarly benchmark short-term trends against the index to evaluate momentum and volatility. Within the Survey's Ratings & Reports and Summary & Index sections, these rankings enable subscribers to align investments with both predictive performance and risk profiles calibrated to the Composite Index.

Comparisons

Differences from Major Indices

The Value Line Composite Index differs fundamentally from major indices like the and in its weighting methodology. While the and DJIA are market-capitalization weighted—allocating greater influence to larger companies based on their total —the Value Line Composite Index is equally weighted, assigning the same importance to each constituent regardless of size. This equal-weighting results in a more balanced representation across company sizes, providing relatively greater exposure to mid- and small-cap s compared to the large-cap dominance in the (which focuses on the 500 largest U.S. firms) and the DJIA's concentration on just 30 prominent blue-chip companies. In terms of universe and coverage, the Composite Index encompasses approximately 1,700 stocks drawn from diverse exchanges, including the NYSE, , AMEX, and OTC markets, offering a broader snapshot of the U.S. equity landscape than its counterparts. Unlike the , which targets only large-cap companies and excludes many -listed growth stocks, or the DJIA's narrow selection of established industrials, the Value Line index includes a wider array of sectors and firm sizes, enhancing its inclusivity of technology and innovative companies traded on . This expansive coverage promotes diversification but can introduce volatility from smaller, less stable constituents not emphasized in major indices. The index's return profile is shaped by its dynamic composition and maintenance practices, leading to higher turnover than observed in cap-weighted benchmarks. Additions and deletions occur based on Value Line's ongoing evaluations, mergers, delistings, and bankruptcies, without a fixed rebalancing schedule like the S&P 500's quarterly adjustments, which can create a subtle small-cap tilt and elevate replication costs for investors tracking the index. In contrast, the lower turnover in market-cap weighted indices like the DJIA—driven by infrequent changes to its 30 components—results in more stable but potentially less responsive portfolios to trends. A key methodological distinction lies in the averaging technique, where the flagship Geometric Composite Index employs a geometric average to compute daily changes, emphasizing compounded returns and approximating the . This contrasts with the arithmetic averaging prevalent in indices like the , which sums changes and may overstate in volatile markets. The geometric approach better simulates long-term buy-and-hold outcomes for equally invested portfolios, while also publishes an Composite Index for direct comparability with arithmetic-based benchmarks.

Benchmarks and Correlations

The Value Line Composite Index demonstrates a strong positive with the , estimated at approximately 0.95 over extended periods such as the 20 years ending around 1990, reflecting its broad coverage of U.S. equities. This high arises from the index's inclusion of many of the same large-cap constituents as the , though its equal-weighting methodology tempers the influence of mega-cap stocks. However, the can decline during periods when the 's performance is disproportionately driven by a few high-growth firms that receive less relative emphasis in the equal-weighted Value Line index. In terms of and explanatory power relative to the broad , the Value Line Composite Index indicates slightly higher than the average due to its balanced exposure across company sizes. The associated R-squared value is 0.90 since 1970, signifying that 90% of the index's variance can be attributed to overall movements, though imperfections from its geometric averaging and rebalancing practices, which introduce mild deviations from cap-weighted benchmarks. Compared to the Russell 3000, which represents a cap-weighted broad U.S. market index, the Value Line Composite Index shows divergence, primarily resulting from its emphasis on mid-cap stocks and rebalancing that adjusts equal weights. This divergence highlights the index's distinct risk-return profile, with higher turnover contributing relative to more static, large-cap-heavy benchmarks. As an alternative benchmark, the Value Line Composite Index is particularly favored for evaluating equal-weight investment strategies, where it serves as a for stock performance across approximately 1,700 companies, capturing about 90% of U.S. . Exchange-traded funds like the S&P 500 Equal Weight exhibit behavior akin to the Value Line index, offering diversified exposure without cap-weight concentration and appealing to investors seeking to mitigate mega-cap dominance.

References

  1. [1]
    Value Line Composite Index: What it is, How it Works - Investopedia
    The Value Line Composite Index is a stock gauge containing approximately 1675 companies from the NYSE, American Stock Exchange, Nasdaq and OTC market.
  2. [2]
    Ranking System | Value Line Library
    Value Line's system ranks stocks for Timeliness (6-12 month price performance) and Safety (risk), using a scale of 1 to 5, with 1 being highest.
  3. [3]
    The Value Line Investment Survey - Investopedia
    The Value Line Composite Index is a stock index comprising all 1,700 companies included in the Value Line Investment Survey.
  4. [4]
    Ranking System - Value Line Pro
    On June 30, 1961, we introduced the Value Line Composite Index. This widely recognized market benchmark assumes equally weighted positions in every stock ...
  5. [5]
    Company History | Value Line
    Value Line was founded in 1931 by Mr. Arnold Bernhard following the stock market crash of 1929 and subsequent bear market that wiped out what little savings his ...Missing: Composite | Show results with:Composite
  6. [6]
    History of Value Line, Inc. – FundingUniverse
    Early History​​ Value Line was founded in 1931 by the legendary financier Arnold Bernhard. Following a brief stint as a reporter and playwright, the would be " ...
  7. [7]
    Value Line Composite Index - Corporate Finance Institute
    The Value Line Composite Index was launched in 1982. It was the first market index to trade in the futures market. It comprises 1681 companies drawn.
  8. [8]
    Timeliness: What It Is, How It Works, Ratings Methodology
    The Value Line research analysis system, Value Line Composite Index, is a popular index of stock evaluation, and timeliness is the most important component ...
  9. [9]
    CFTC History in the 1980s
    February 16, 1982—The CFTC approves the first futures contract based on a stock index, the Value Line Index Average traded on the Kansas City Board of Trade.
  10. [10]
    https://www.thebusinessprofessor.com/value-line-composite-index-explained/
  11. [11]
    Value Line Index ($VLA) - Barchart.com
    Value Line Index stocks price quote with latest real-time prices, charts, financials, latest news, technical analysis and opinions.
  12. [12]
    Value Line Composite Index - Wall Street Oasis
    Nov 29, 2024 · The Value Line Composite Index derives its name from the "Value Line," a measure of cash flow that Bernhard utilized to stabilize the valuation ...
  13. [13]
    Equal-Weighted Index - Financial Edge Training
    Nov 25, 2024 · Equal weighted indices also require more frequent rebalancing (the process of changing the weights of individual constituents to adhere closely ...Missing: Composite | Show results with:Composite
  14. [14]
    [PDF] The Value Line Investment Survey®
    Mar 15, 2024 · The Value Line Investment Survey is a unique source of financial information to help investors make informed decisions, covering many stocks ...
  15. [15]
    Value Line Composite Index: Types and Practical Insights
    Mar 28, 2024 · The original Value Line Geometric Composite Index is an equally weighted index that uses a geometric average for daily price changes.Missing: definition | Show results with:definition
  16. [16]
    Value Line® Target Safety 30, 4th Qtr 2025 - First Trust
    The Value Line Investment Survey® is a comprehensive source of information on approximately 1,700 stocks in approximately 100 industries. What Is The Value Line ...
  17. [17]
    Equities Services - Value Line Inc
    Value Line offers services covering large, mid, and small-cap stocks, with detailed stock reports, rankings, and financial data, including a digital version.Classic Print Services · Digital Equities Services · Digital Selection Services
  18. [18]
    The Value Line Investment Survey
    The Value Line Investment Survey provides detailed stock reports, financial data, projections, and expert commentaries, along with Timeliness and Safety Ranks.Missing: Composite | Show results with:Composite
  19. [19]
    Introduction To The Valueline Index - FasterCapital
    The Value Line Composite Index is a market-weighted index that tracks the performance of all 1,700 companies in the index, while the Value Line Arithmetic Index ...
  20. [20]
    The Value Line Ranking System
    The Value Line Ranking System for Timeliness™ ranks approximately 1,700 stocks relative to each other for price performance during the next six to 12 months.Missing: 1970s benchmark
  21. [21]
    Comparing the Dow Jones Industrial Average and S&P 500
    Understand the key differences between the Dow Jones and S&P 500 in terms of methodology, composition, and their role in the U.S. stock market.
  22. [22]
    The Dow vs. Nasdaq vs. S&P 500: What's the difference? - Bankrate
    Apr 9, 2025 · The Dow, Nasdaq and S&P 500 are all market indexes, not stock exchanges. Learn more about the key differences between each of them.
  23. [23]
    S&P 500 vs. Value Line Geometric Index (Median U.S. Stocks)
    S&P 500 vs. Value Line Geometric Index (Median US Stocks) The Value Line Geometric Index (median US stock) has gone nowhere in 23 years!
  24. [24]
    [PDF] The Performance of Market Index Futures Contracts
    An average of roughly 2,300 December '82 contracts traded daily in the Value Line, 8,050 in the New York Stock Exchange Composite Index, and 16,250 in the ...<|separator|>