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In June 2012 following his graduation from Amherst College, Jon Christian Evensen shut down The Strategist Newsletter since those classmates that had assisted him from time to time are pursuing different opportunities across the United States. About The Strategist Newsletter: Jon Christian... More
  • S&P 500 Additions Outperform SPY in 2010: Consider NFLX, FFIV, CVC, NFX 0 comments
    Dec 9, 2010 10:28 PM | about stocks: NFLX, FFIV, CVC, NFX, URBN, DISCA, HP, OKE, CERN, KMX, QEP, ACE, TYC, IR, SPY
    Standard and Poor's announced after the close that Netflix (NFLX), F5 Networks (FFIV), Cablevision (CVC), and Newfield Exploration (NFX) will be added to the S&P 500.

    Standard and Poor's have announced ten changes to the S&P 500 prior to these in 2010. As a basket they have outperformed the S&P 500 which we measure by the S&P 500 ETF (SPY). We did not account for dividends in this analysis.

    The ten additions were:
    URBN announced on 1/29
    DISCA announced on 2/16
    HP announced on 2/22
    OKE announced on 3/3
    CERN announced on 3/18
    KMX announced on 6/22
    QEP announced on 6/23
    ACE announced on 7/8
    TYC announced on 8/19
    IR announced on 11/10

    We analyzed the performance of each company from the following day's opening price through the close on December 9th. We averaged the performance on the assumption that equal capital was put into each position.

    The average return from the market open post-announcement of the S&P 500 additions basket is 30.53% compared to 11.37% for SPY. 

    The outperformance is substantially due to the impressive run in CERN, so we removed CERN from the data set to see if the outperformance still held up. Over that nine stock basket, the average return was 18.80% compared to 11.99% for SPY.

    In terms of consistency, seven of the ten stocks outperformed SPY since the market open immediately following the announcement they would be added to the S&P 500.

    The bottom line is S&P 500 additions in 2010 have outperformed the index in the form it is most accessible to retail investors - the S&P 500 ETF (SPY).

    Based on this analysis, investors and traders should consider buying NFLX, FFIV, CVC, and NFX at the open tomorrow even though they will already be up due to the announcement they are being included in the S&P 500.

    Disclosure: I am long FFIV.
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