S&P funds to buy $2.5 billion dollars of BRCM stock.
clearstation.com
Standard & Poor's, when choosing stocks for the S&P 500, considers not just a company's market capitalization, but also its financial and operating condition. "The goal is to add companies to the index that are relatively stable and will keep turnover in the index low," is how S&P explains it. As a result, a company is not automatically added to the index once its market cap reaches the top-500 threshold, and if it is a highflier, it will often have to wait some time before it gets included.
This is what happened to Broadcom, a communications chipmaker whose stock has added more than 800% over the last two years. With a market capitalization of around $40 billion, it will come into the S&P (a cap-weighted index) ranked around 60th.
Billions and Billions Swerve
Because it will come into the index ranked so high, managers of funds indexed to the S&P 500 are going to have to buy a whole lot of Broadcom. There's about $800 billion indexed to the S&P, and indexers are going to have to buy around $2.5 billion worth of Broadcom, according to Merrill Lynch. |
