On Friday Standard & Poor’s will make significant changes to the S&P 500 index.
After the market’s close, S&P will change the weightings of many of the shares in the S&P 500, a closely watched benchmark of the broader U.S. stock market.
S&P will make the same changes to its SmallCap 600 and MidCap 400 indexes.
All three indexes are “market-weighted,” meaning their biggest stocks, by market capitalization, move the indexes more than those with lower market caps.
Under the new initiative, called the “full float adjustment,” S&P aims to increase liquidity, or ease of trading, by reducing the influence of stocks with a lot of shares that are not publicly traded for reasons of their being held by a founding family or a government entity.
Stocks with a great deal of public float will see their weightings increase.
In a float-adjusted index, the number of shares of a company reflects only the shares available to investors, not the total shares outstanding. Over the last few years, float adjustment has become the accepted standard for capitalization-weighted indexes, says S&P.
Under the full-float plan, ExxonMobil will still remain the index’s most heavily weighted stock, followed by General Electric and Microsoft.
However, Microsoft’s weighting will actually go down a bit because a portion of the software giant’s shares are closely held.
The biggest shift will be Wal-Mart, with its share count dropping by roughly 20%, and its market cap as calculated by S&P falling by $4 billion.
Gaining the most influence is ExxonMobil because 100% of its shares are available for public trading, S&P says.
The first step of the shift takes place after Friday’s close, when S&P goes to “half float.” That means that half of the unavailable shares will be removed from the index calculation.
The final institution of the full-float adjustment takes effect September 16.
Revised S&P 500 to debut Friday
Index takes first step towards "full float adjustment"
- By: IE Staff
- March 17, 2005 March 17, 2005
- 14:20