S&P 500 gatekeepers are the new active investors

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The recent decision not to include Tesla in the S&P 500 Index highlights subjective rules about factors like profitability. It's hardly passive investing, writes Three_Guineas.

S&P Dow Jones Indices said on Sept. 4 that it would remove H&R Block, Coty and Kohls from the S&P 500 Index, as of Sept. 21, and add Etsy, Teradyne and Catalent. Electric-car maker Tesla had reported a profit over four quarters, one criterion for inclusion, but the index compiler did not add the company to the index. Tesla's $341 billion market capitalization, as of Sept. 9, is more than eight times the combined value of the three firms that were added.

Tesla's share price posted its worst single-day percentage drop ever on Sept. 8, the first U.S. trading day after the announcement, falling 21%. It rebounded by 11% on Sept. 9. Index funds with at least $4.6 trillion in assets track the S&P 500, according to the index provider. It is comprised of the 500 largest U.S. public companies by market capitalization that also meet other criteria related to characteristics like corporate structure, profitability and liquidity.

 

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