S&P Dow Jones Indices Announces Update to S&P Composite 1500 Market Cap Guidelines

Rhea-AI Summary

S&P Dow Jones Indices (S&P DJI) has updated the market capitalization eligibility criteria for additions to the S&P Composite 1500 Indices, effective January 2, 2024. The size ranges have been adjusted for the S&P 500, S&P MidCap 400, and S&P SmallCap 600 indices. The minimum market capitalization guidelines are designed to capture the three-month average cumulative total company level market capitalization of the S&P Total Market Index (TMI) universe at specific cumulative percentiles. Companies passing the market capitalization criteria must also have a security level float-adjusted market capitalization (FMC) that is at least 50% of the respective index's total company-level minimum market capitalization threshold.

Insights

Market Research Analyst

The update in market capitalization eligibility criteria for the S&P Composite 1500 Indices signifies a notable shift in the indexing strategy of S&P Dow Jones Indices, reflecting the evolving landscape of the market. The increase in the market capitalization thresholds is indicative of the inflationary trends and the general growth in company valuations over time. This adjustment ensures that the indices continue to represent the intended market segments accurately.

For investors, these changes could lead to a reshuffling of the index constituents, potentially impacting index funds and exchange-traded funds (ETFs) that track these indices. Companies on the cusp of the new thresholds may experience increased buying or selling pressure as funds adjust their holdings to align with the updated index composition. This could result in heightened volatility for these stocks around the rebalancing dates.

Moreover, the adjustment in market capitalization ranges may also influence the perception of company size classification, affecting investment strategies that are size-based. For instance, a mid-cap focused fund might need to reassess its portfolio if certain holdings are reclassified as large-cap due to the updated criteria.

Financial Analyst

The revision in the S&P Composite 1500 Indices' market capitalization criteria is a critical development for institutional investors, as it could prompt rebalancing of portfolios and asset allocation strategies. The market capitalization is a fundamental criterion for index inclusion and changes in these thresholds can lead to material shifts in the composition of these indices, which are benchmarks for billions of dollars in assets.

From a financial analysis perspective, the alteration in eligibility criteria may affect the liquidity and cost of capital for companies that are added or removed from the index. Inclusion in a major index like the S&P 500 often results in increased demand for a company's stock and can lower the cost of capital, while exclusion can have the opposite effect.

It is also important to consider the impact on passive investment strategies. As index funds automatically adjust their holdings to match the index composition, these changes will necessitate transactions that can move markets, especially for smaller-cap stocks that may have lower trading volumes.

Economist

The adjustments to the S&P Composite 1500 Indices thresholds reflect broader economic forces at play, such as market expansion and inflation. The recalibration of market capitalization criteria can be seen as a response to overall market growth and the need to maintain a representative benchmark for the economy.

This development has implications for economic research and policy analysis, as the indices are often used as indicators of economic health and sector performance. Changes in index composition can affect the interpretation of these indicators, potentially influencing economic forecasting and policy decisions.

Furthermore, it is essential to recognize that the rebalancing of indices based on updated market capitalization may lead to a reevaluation of the 'size' of the average American company, which could have implications for economic modeling and the understanding of market dynamics.

NEW YORK, Jan. 2, 2024 /PRNewswire/ -- S&P Dow Jones Indices ("S&P DJI") is updating the market capitalization eligibility criteria for additions to the S&P Composite 1500 Indices. Effective January 2, 2024, the size ranges will be updated as follows:

Previous Market Capitalization Eligibility Criteria	Updated Market Capitalization Eligibility Criteria
Unadjusted company market capitalization of: •  US$ 14.5 billion or more for the S&P 500 •  US$ 5.2 billion to US$ 14.5 billion for the S&P MidCap 400 •  US$ 850 million to US$ 5.2 billion for the S&P SmallCap 600	Unadjusted company market capitalization of: •  US$ 15.8 billion or more for the S&P 500 •  US$ 5.8 billion to US$ 15.8 billion for the S&P MidCap 400 •  US$ 900 million to US$ 5.8 billion for the S&P SmallCap 600

These market capitalization ranges are reviewed at the beginning of every calendar quarter, updated as needed to ensure they reflect current market conditions, and are expressed in dollar ranges. These minimum market capitalization guidelines are designed to capture the three-month average cumulative total company level market capitalization of the S&P Total Market Index ("TMI") universe at approximately the following cumulative percentiles:

• S&P 500 – 85th percentile
• S&P MidCap 400 index – 85th-93rd percentile
• S&P SmallCap 600 index – 93rd-99th percentile

Companies passing the total company-level market capitalization criteria must also have a security level float-adjusted market capitalization (FMC) that is at least 50% of the respective index's total company-level minimum market capitalization threshold.

As a reminder, the market capitalization eligibility criteria are for additions to an index, not for continued membership. As a result, an index constituent that appears to violate criteria for addition to that index is not removed unless ongoing conditions warrant an index change.

A history of market cap ranges dating back to 2007 can be found in Appendix A of the U.S. Indices methodology. The U.S. Indices methodology document will be updated soon to reflect the changes. Please visit our website www.spglobal.com/spdji for further details.

For more information about S&P Dow Jones Indices, please visit www.spglobal.com/spdji

ABOUT S&P DOW JONES INDICES

S&P Dow Jones Indices is the largest global resource for essential index-based concepts, data and research, and home to iconic financial market indicators, such as the S&P 500® and the Dow Jones Industrial Average®. More assets are invested in products based on our indices than products based on indices from any other provider in the world. Since Charles Dow invented the first index in 1884, S&P DJI has been innovating and developing indices across the spectrum of asset classes helping to define the way investors measure and trade the markets.

S&P Dow Jones Indices is a division of S&P Global (NYSE: SPGI), which provides essential intelligence for individuals, companies, and governments to make decisions with confidence. For more information, visit www.spglobal.com/spdji.

FOR MORE INFORMATION:

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SOURCE S&P Dow Jones Indices

FAQ

What are the updated market capitalization eligibility criteria for S&P Composite 1500 Indices?

The updated market capitalization eligibility criteria are: US$ 15.8 billion or more for the S&P 500, US$ 5.8 billion to US$ 15.8 billion for the S&P MidCap 400, and US$ 900 million to US$ 5.8 billion for the S&P SmallCap 600.

When will the market capitalization ranges be reviewed?

The market capitalization ranges are reviewed at the beginning of every calendar quarter and updated as needed to reflect current market conditions.

What is the purpose of the minimum market capitalization guidelines?

The minimum market capitalization guidelines are designed to capture the three-month average cumulative total company level market capitalization of the S&P Total Market Index (TMI) universe at specific cumulative percentiles.

What is the requirement for companies passing the market capitalization criteria?

Companies passing the market capitalization criteria must also have a security level float-adjusted market capitalization (FMC) that is at least 50% of the respective index's total company-level minimum market capitalization threshold.

Where can the history of market cap ranges dating back to 2007 be found?

The history of market cap ranges can be found in Appendix A of the U.S. Indices methodology document, which will be updated soon to reflect the changes.