“The S&P 500 is an index with more than 80 years of history and $1 trillion invested,” notes David Blitzer, Managing Director and Chairman of the Index Committee at Standard & Poor’s. “But for an index to remain viable and useful, it must change with the market, and when it changes it must do so efficiently. The move to free float is Standard & Poor’s response to the evolution of the market.”
Documents and analysis released today by Standard & Poor’s show that the impact of float adjustment - where the number of company shares counted in the index calculation are adjusted for closely held shares not available to investors - will be modest:
- For the S&P 500, 395 stocks have investable weight factors (IWF’s) of 1.0. For the S&P MidCap 400 the figure is 280, and for the S&P SmallCap 600 the figure is 386.
- Estimated turnover due to float adjustment is 3.34% for the S&P 500, 5.22% for the S&P MidCap 400 and 5.30% for the S&P SmallCap 600. Annual turnover figures for the indices over the last three years were 3.23%, 12.10% and 12.53%, respectively.
- Index performance and risk will experience minimal changes. The performance difference between the float adjusted and non-float adjusted S&P 500 over the last 12 months is estimated at 0.25%.
- Stocks will see changes in their weight within the index. The largest weight decline in the S&P 500 is 0.79 percentage points; the largest increase is 0.14 percentage points.
All documents detailing Standard & Poor’s move to full float adjustment for the U.S. indices, including the methodology, the float factors (percentage of shares outstanding to be included in the indices) and the impact of the indices transition, can be accessed by going to www.freefloat.standardandpoors.com.
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