The spotlight will be on the fast growing Facebook (FB) which will replace Teradyne (TER) at the close on December 20. The other two changes in the S&P 500 benchmark include the replacement of Abercrombie & Fitch (ANF) and JDS Uniphase (JDSU) with Alliance Data Systems (ADS) and Mohawk Industries (MHK).
FB will also replace The Williams Inc. (WMB) in the S&P 100 index of large U.S. companies.
Facebook Addition: A Bull Run
Facebook’s addition came as no surprise as the social media giant has given a stellar performance over the past couple of months, leading to a surge in its market capitalization. (read:Is the Social Media ETF Losing Its Luster?).
The market value of FB was $121.2 billion at close yesterday. This is much higher than some of the Dow components – $99.6 billion for Boeing (BA), $99.7 billion for United Technologies (UTX) and $94.8 billion for McDonalds (MCD).
The move follows the company’s profitable results for the fourth consecutive quarter, one of the major criteria to be eligible for the S&P 500 index. Facebook also serves the other requirements of market capitalization, liquidity and trading availability for at least six months after its debut. The ongoing boom in the Internet space and the skyrocketing prices of social media stocks has been an added advantage for Facebook’s addition.
Facebook will make its entry into the S&P 500 in less than two years of its IPO, which is almost the same period when Google (GOOG) joined the benchmark. However, Facebook edged past most of the big tech names like Amazon (AMZN), eBay (EBAY) and Yahoo (YHOO) that took over three years to join the S&P 500.
Thus, we see this as a clear victory for Facebook, which was struggling with technical glitches and plunging stock prices following its 2012 IPO. This will provide a big boost to the company’s growth prospects and is suggestive of solid trading ahead for the stock (read: 3 ETFs with the Most Facebook Exposure in Focus).
Immediately following the announcement, shares of FB jumped 4% in after-market hours trading yesterday. The shares are up 86% year-to-date.
Following the inclusion of FB as an S&P 500 member, some of the largest ETFs tracking the S&P 500 index would also add Facebook in their roster. For investors seeking to take advantage of this change, we have highlighted a few that could make for interesting plays in the coming days:
SPDR S&P 500 ETF (SPY) – This ultra-popular ETF tracks the S&P 500 index with AUM of $165.4 billion and average daily volume of nearly 116.6 million shares. The fund charges 9 bps in fees per year from investors. The ETF returned nearly 29% this year and has a Zacks ETF Rank of 3 or ‘Hold’ rating.
iShares Core S&P 500 ETF (IVV) – This is the second largest fund in the space and has managed assets worth $51.3 billion. The fund trades in volume of more than 4.4 million shares a day while charges 7 bps in fees and expenses. The ETF added over 27% so far this year and currently has a Zacks ETF Rank of 3 or ‘Hold’ rating.
Guggenheim S&P 500 Equal Weight ETF (RSP) – Unlike the other two, this ETF provides equal weight exposure to 500 securities by tracking the S&P 500 Equal Weight Index. The fund is less popular and less liquid with $6 billion in its asset base and moderate volume.
Though the product is a high cost choice charging 40 bps in annual fees, it outperformed both the State Street and iShares counterparts. RSP has a Zacks ETF Rank of 2 or ‘Buy’ rating and is up nearly 30% year-to-date (read: Beat the Market with Smart Beta ETFs).
iShares S&P 100 ETF (OEF) – Since Facebook is also being added to the S&P 100 index, OEF tracking this index will soon find the stock in its holdings. The ETF has amassed $10.4 million in its asset base while volume is extremely light. Expense ratio came in at 0.20%. The fund added nearly 19% so far this year and has a Zacks ETF Rank of 3 or ‘Hold’ rating.
Currently, a handful of ETFs like Global X Social Media Index ETF (SOCL), PowerShares Nasdaq Internet Portfolio (PNQI), First Trust Dow Jones Internet Index (FDN) and First Trust US IPO Index Fund (FPX) includes Facebook in their top 10 holdings.
The changes would really mean a lot for the important benchmark and the ETFs. The inclusion of Facebook in the S&P 500 index will definitely increase the number of choices for ETF investors seeking a broad exposure and a concentrated play on the stock.
This article is brought to you courtesy of Eric Dutram.