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March 28, 2006 at 07:00 PM
Online search engine giant Google (GOOG) will be added to the S&P 500 at the end of this month. Google’s inclusion in the index will result in more scrutiny of the company and also compel index fund managers to purchase shares.
Scott Kessler, director of information technology research at Standard & Poor’s, reiterated his “hold” recommendation on Google, but noted that the stock’s addition to the S&P 500 will have some positive implications.
“We think the stock will be in demand from funds and ETFs that emulate the S&P 500, and to some extent, those whose benchmark is the S&P 500,” Kessler said. “We consider this a major near-term positive for the stock, but it does not change our skepticism about what we consider the notable material challenges faced by Google.”
Shares of Google are up over 8% in late-morning trading as funds that track the S&P 500 move to buy shares. Overall however, the excess returns associated with index addition announcements have been diminishing, according to research from Standard & Poor’s.
