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.
Between mid-1998 and mid-2000, the median excess return between announcement date and effective date for stocks added to the S&P 500 amounted to 8.9%. Between mid-2000 and mid-2002, the average gain was 4.5%. A stock added to the index rose only 3.6% between mid-2002 and mid-2004.
Google will replace Burlington Resources (BR) in the S&P 500 after the close of trading on Friday, March 31.
Given the market’s reaction to the news, funds and ETFs with larger stakes in Google appear poised to benefit in the short term. Below is a list of those that included Google as a top ten holding as of January 31.
Assets in Google (%)
|Monetta Trust:Select Technology Fund (MSCEX)||
|Van Kampen Technology/A (VTFAX)||
|TCW Select Equities Fund/N (TGCNX)||
|Van Kampen Equity Growth/A (VEGAX)||
|Van Kampen Pace/A (ACPAX)||
|Kelmoore Strategy Eagle Fund/A (KSEAX)||
|SM&R Alger Aggressive Growth Fund/A (SRAAX)||
|iShares Dow Jones U.S. Technology Sector Index Trust (IYW)||
|Reynolds Funds Blue Chip Growth Fund (RBCGX)||
Contact Bob Keane with questions or comments at: [email protected].