The S&P 500’s latest quarterly rebalancing saw AirBnB, the premier online marketplace for short- and long-term homestays and experiences, and Blackstone (NYSE:BX), the private equity giant, enter the U.S. large-cap equity benchmark. The addition of these companies reflects the market capitalization eligibility criteria the index provider has established, thus maintaining its relevance and usefulness to investors. As a result of these companies being added, Lincoln National Corp (NYSE:LNC). and Newell Brands Inc. have been removed from the index.
As noted in S&P Global’s January 4th press release, the market capitalization eligibility criteria required to be included in the S&P 500 Index is at least $12.7 Billion, of which AirBnB ($ 85.927 Billion) and Blackstone ($135.077 Billion) have surpassed.
Does membership bring benefits?
While being included in the S&P 500 index does bring prestige and gravitas to companies, is there a material benefit that can be observed via a stock’s performance? Fortunately, research conducted by McKinsey & Company answers this question. As noted in their brief research paper, “What is stock index membership worth?”, historical data suggests that any benefits included (or excluded) from a stock index tend to be short-lived. Based on an analysis of 103 stocks listed on the S&P 500 between December 1999 and March 2004, McKinsey & Company discovered that the inclusion of a stock in a major index like the S&P 500 has a notable short-term impact on its price. Still, the return premium tends to fade after roughly 45 days.
The ETF Implications
With the index being rebalanced, many ETFs that follow a full replication strategy, that is, match the index composition by holding every security at the same weight as the index, will now have exposure to both AirBnB and Blackstone within their solutions. Given that ETFs that track the S&P 500 index are among the largest, the following solutions are among the notable many that will be impacted:
SPDR® S&P 500 ETF Trust (Ticker: SPY (NYSE:SPY)) | AUM: $400.40B | Net Expense Ratio: 0.09%
The investment seeks to provide investment results that, before expenses, generally correspond to the price and yield performance of the S&P 500® Index. The Trust seeks to achieve its investment objective by holding a portfolio of the common stocks that are included in the index (the “Portfolio”), with the weight of each stock in the Portfolio substantially corresponding to the weight of such stock in the index.
iShares Core S&P 500 ETF (Ticker: IVV) | AUM: $342.28B | Net Expense Ratio: 0.03%
The investment seeks to track the investment results of the S&P 500 composed of large-capitalization U.S. equities. The index measures the performance of the large-capitalization sector of the U.S. equity market, as determined by SPDJI. The fund generally will invest at least 80% of its assets in the component securities of its index and in investments that have economic characteristics that are substantially identical to the component securities of its index and may invest up to 20% of its assets in certain futures, options and swap contracts, cash and cash equivalents.
Vanguard S&P 500 ETF (Ticker: VOO) | AUM: $326.19B | Net Expense Ratio: 0.03%
The investment seeks to track the performance of the Standard & Poor‘s 500 Index which measures the investment return of large-capitalization stocks. The fund employs an indexing investment approach designed to track the performance of the Standard & Poor's 500 Index, a widely recognized benchmark of U.S. stock market performance that is dominated by the stocks of large U.S. companies. The advisor attempts to replicate the target index by investing all, or substantially all, of its assets in the stocks that make up the index, holding each stock in approximately the same proportion as its weighting in the index.
SPDR® Portfolio S&P 500 ETF (Ticker: SPLG) | AUM: $19.44B | Net Expense Ratio: 0.02%
The investment seeks to provide investment results that, before fees and expenses, correspond generally to the total return performance of the S&P 500 Index. Under normal market conditions, the fund generally invests substantially all, but at least 80%, of its total assets in the securities comprising the index. The index is designed to measure the performance of the large-capitalization segment of the U.S. equity market.
This content was originally published by our partners at ETF Central.