S&P Dow Jones Indices has published its quarterly index review. The changes take effect before the open of trading on Monday 21 September.
An index review is usually a technical item. This time its composition says something, so the list is worth looking at rather than just the headline.
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What Changes in the S&P 500
| Joining | Sector | Leaving | Sector | |
|---|---|---|---|---|
| Bloom Energy (BE) | Industrials | Molson Coors (TAP) | Consumer Staples | |
| Everpure (P) | Information Technology | The Trade Desk (TTD) | Communication Services | |
| Illumina (ILMN) | Health Care | Builders FirstSource (BLDR) | Industrials |
The stated reason for each of the six changes is identical: index representativeness. That is, there is no acquisition, merger or delisting here - this is an adjustment to market capitalisation alone.
And one detail in that table is out of the ordinary: the three departing companies do not move to the S&P MidCap 400, the mid-sized index. They move straight to the S&P SmallCap 600.
That is a fall of two tiers at once rather than one. The middle index is simply skipped.
And What Changes in the S&P 100
The S&P 100 is a subset of the hundred largest companies within the 500, and there the change is strikingly uniform:
| Joining | Leaving | |
|---|---|---|
| Dell (DELL) | NIKE (NKE) | |
| Palo Alto Networks (PANW) | Honeywell Aerospace (HONA) | |
| Arista Networks (ANET) | Simon Property Group (SPG) | |
| Sandisk (SNDK) | Colgate-Palmolive (CL) |
All four additions are classified in a single sector - information technology. The departures are spread across four different sectors: consumer discretionary, industrials, real estate and consumer staples.
And two of the joiners reported this week - Dell and Palo Alto - and both were covered here.
And in the Smaller Indices
Joining the S&P MidCap 400 are HubSpot (HUBS), AGNC Investment (AGNC), Corcept Therapeutics (CORT) and Brinker International (EAT). Leaving it are Boston Beer, Capri Holdings, Everpure and Illumina - the last two because they are moving up to the 500.
Joining the S&P SmallCap 600 are, among others, Herc Holdings, Delek US Holdings, AXT, Arcutis Biotherapeutics and AtriCure, while eight companies leave it on the stated grounds that they are "no longer representative" - different wording from that attached to the other changes.
What This Means, and What It Does Not
An index is not a quality ranking, and inclusion in one is not an opinion. The index committee is not determining that a company is good or bad - it checks market capitalisation, liquidity, profitability and public float, and orders companies by size.
Which means the direction runs opposite to how it feels: the index does not move the company; the company moves and the index catches up, late. The Trade Desk did not fall because it was removed - it was removed because it fell.
The one thing inclusion does do in practice is mechanical: funds tracking the index are required to buy the joiners and sell the leavers by the effective date. That is a plumbing requirement, not a valuation judgment.
The announcement came after Friday's close, so the share reaction to it will only become visible on Monday.
For scale, these are Friday's closing prices - before the announcement was published: Bloom Energy $252.87, and The Trade Desk $14.43. (Bloom Energy's rise that day preceded the announcement and is unrelated to it.)
הזווית שלי
דעה אישית של אילן אברמוב - לא ייעוץ ולא המלצה
What caught my attention here is not who joined but how uniform the direction is.
Four additions to the S&P 100, all information technology. And on the other side - a shoe maker, an aerospace division, shopping centres and toothpaste. That is not a committee's choice, it is an outcome of market capitalisation, and that is exactly why it is interesting: it measures where capital flowed without anyone intending to say anything about it.
And the detail that tells the story best, to my mind, is the skipped middle index. A company that leaves the 500 and lands directly in the 600 did not decline gradually - it lost enough value to cross an entire index in one step. That happened to three companies in the same review.
And what I try not to do with information like this is draw more from it than it holds. An index review is a late snapshot of what has already happened - it describes the year that was, not the one to come. It is a good measuring instrument and a poor indicator.
(It is important to stress: this is my personal opinion only, and nothing herein constitutes a recommendation to take any action. Ilan Abramov, the writer, or parties on his behalf may hold positions in the securities mentioned, and those holdings change from time to time.)
