Ascend Communications Inc has been chosen as the lucky replacement for Digital Equipment Corp in the all important S&P 500 index, an index which comprises the ‘top’ 500 US equities, guaranteeing it a huge boost in value when trading opens today (Tuesday). Ascend, the Wide Area Networking (WAN) equipment manufacturer based in Alameda, California, takes DEC’s place due to the latter’s acquisition by Compaq Computer Corp (Compaq already being in the S&P 500). Procter & Gamble Co, the consumer products group, will take DEC’s place in the S&P 100. An estimated $626bn of mutual funds (managed funds which invest in a portfolio of stocks) currently track the S&P 500 index, and Ascend’s existing stockholders could see a jump of as much as 10% in value of their holdings from the ‘index effect’. When Equifax Inc, the credit checking company, was included last year, its shares jumped from around $32 to $36. Tracker funds drive up the value as they buy into the new stock over the space of a few days. Such funds simply hold a representative quantity of all the S&P 500 equities and in the last year, blindly following the index in this fashion has outperformed around 90% of all managed funds, estimates David Blitzer, vice president and chief economist at Standard & Poor’s Financial Information Services, although he admitted that it had been a good year for the index. The method of choosing any new entrant to the hallowed S&P 500 is, necessarily, shrouded in mystery, but many market pundits publish their own theories on how a new entrant is chosen, hoping to pick the stock before the news breaks. Blitzer says the stock is chosen on a variety of qualities, including the size of the company’s market capitalization, its financial viability and the on-going need for the S&P 500 to reflect the breadth of the US equity market, but he refused to be drawn on the exact methods. And we won’t show our dartboard either, he commented. รก
