Lululemon is the latest to join the S&P 500 — and gain access to billions in investment
Lululemon is the latest to join the S&P 500 — and gain access to billions in investment
Starting Wednesday, there’s going to be a new company in the S&P 500. And an old one heading out. Activision Blizzard is going away, because it’s been acquired by Microsoft. To replace it, S&P Dow Jones Indices — which owns the S&P 500 index — has chosen athleisure brand Lululemon Athletica. So what does that mean?
There are plenty of perks that come with an S&P 500 membership card.
“Being on the S&P 500 gives you more visibility,” said Will Goetzmann, a finance professor at Yale. He’s spent decades following what happens when companies join the S&P 500.
The big perk is a slice of the more than $5.5 trillion parked in mutual funds and ETFs that simply buy whatever’s in the index.
“When a company’s added to something like the S&P 500, a whole bunch of funds buy that firm, and then the price goes up,” Goetzmann said.
That investment comes with some complications.
Drew Pascarella at Cornell University said companies prefer to be judged on their individual performance. Like how well Lululemon’s mid-rise pants are selling.
But when a company joins an index, those factors can lose relevance.
“There are institutional investors that are buying and selling an index, not based on what Lululemon is doing, but based, overall, on macroeconomic factors,” Pascarella said.
That means big investors might start selling if they’re worried about, say, global economic growth, interest rates or consumer confidence. “As opposed to understanding that those macro factors might be more limited in their impact on one company versus others,” Pascarella said.
Big investors have also been getting more aggressive when it comes to environmental and social issues, said Evan Rawley at the University of Connecticut.
“There’s, like, a social contract that institutional investors believe firms have with society, to behave in ways that are pro-social,” Rawley said.
So, those issues will likely become more important for any company that joins the S&P 500.
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