How Times Have Changed: S&P 500 Includes Smallcaps and Microcaps

The S&P 500 index is the most widely-followed stock index in the world. Because it is supposed to consist of “500 leading companies in leading industries of the U.S. economy” (see fact sheet pdf), the S&P 500 is widely replicated by ETFs, passive mutual funds, and institutional investors. According to the fact sheet, S&P 500 member companies generally have market capitalizations “in excess of $5 billion,” and the smallest company in the index when the fact sheet was last updated had a capitalization of $1.3 billion.

How times have changed. Forget the $5 billion threshold — many companies in the index now have market capitalizations under $1 billion. According to the basic screener on Yahoo! Finance, these are now the smallest companies in the S&P 500 (as of 11/21/2008):

AK Steel Holdings (AKS)	$696.83M
Apartment Inv. & Mgmt. Co. (AIV)	$812.08M
American Capital Strategies (ACAS)	$917.90M
CB Richard Ellis Group (CBG)	$714.91M
Centex (CTX)	$684.82M
CIT Group (CIT)	$522.46M
Convergys (CVG)	$535.58M
Ciena (CIEN)	$521.01M
Developers Realty (DDR)	$330.75M
E*Trade Financial (ETRD)	$484.01M
Genworth Financial (GNW)	$389.70M
Harman Int’l Industries (HAR)	$698.86M
JDS Uniphase (JDSU)	$476.91M
Jones Apparel Group (JNY)	$244.36M
KB Home (KBH)	$718.78M
Lennar (LNR)	$584.46M
Liz Claiborne (LIZ)	$169.66M
MBI (MBI)	$978.37M
Manitowoc (MTW)	$630.90M
Meredith Corp. (MDP)	$571.18M
NY Times (NYT)	$765.85M
Office Depot (ODP)	$467.31M
Prologis SBI (PLD)	$798.46M
Tenet Healthcare (THC)	$577.15M
Teradyne (TER)	$530.86M
Wyndham Worldwide (WYN)	$535.52M

All of these companies will likely be deleted when the index is reconstituted. Might be time to reread one of my favorite trading books, Trade Like a Hedge Fund. If I recall correctly, that book has a chapter describing a trading strategy based on index deletions.

DISCLOSURE: No positions.

Comments

[The_Value_I...:]

Good point. This actually doesn't surprise me much at all. Publishing, retail and financials are dominating this list, 3 sectors that have been hit upside the head again and again and again for the past 14 months.

2008 Nov 24 05:16 PM