Standard & PoorÂ's announced today that it would replace the seven non-U.S. companies currently in the S&P 500 with seven U.S. companies, effective after the close of trading on July 19, 2002.
As a result, Standard & PoorÂ's will make the following changes in the S&P 500, and resultant changes to the S&P 100, S&P MidCap 400 and S&P SmallCap 600 Indices:
United Parcel Service (NYSE:UPS), Goldman Sachs (NYSE:GS), Prudential Financial (NYSE:PRU), eBay Inc. (NASD:EBAY), Principal Financial Group (NYSE:PFG), and S&P MidCap 400 componentÂ's Electronic Arts (NASD:ERTS) and SunGard Data Systems (NYSE:SDS) will replace Royal Dutch Petroleum (NYSE:RD), Unilever NV (NYSE:UN), Nortel Networks (NYSE:NT), Alcan Inc. (NYSE:AL), Barrick Gold Corp (NYSE:ABX), Placer Dome Inc. (NYSE:PDG), and Inco Ltd. (NYSE:N), in the S&P 500 Index.
Pier 1 Imports (NYSE:PIR), an S&P Small Cap 600 component, and PETsMART Inc. (NASD:PETM) will replace Electronic Arts and SunGard Data Systems in the S&P MidCap 400 Index.
Watson Wyatt (NYSE:WW) will replace Pier 1 Imports in the S&P SmallCap 600 Index.
Goldman Sachs will replace Nortel Networks in the S&P 100 Index.
The change puts all S&P 500 members in compliance with Standard & PoorÂ's current selection criteria, which requires members to be U.S. companies. The seven non-U.S. companies (two European and five Canadian) entered the index, some as far back as sixty years ago, before the requirement was in place and before Standard & PoorÂ's had established a series of global indices.
The two European companies continue as members of the S&P Europe 350 and the five Canadian remain members of the S&P/TSX 60. All of these non-U.S. companies were double-counted in the S&P Global 1200 and their elimination from the S&P 500 resolves this issue.
'This change makes the S&P 500 a better reflection of the large cap segment of the U.S. equities market and enhances the role of the S&P 500 as the key U.S. component of our global S&P index family,' said David M. Blitzer, Chairman of the S&P Index Committee.
'Increasingly, users of the S&P 500 have told us that the inclusion of non-U.S. companies in the index makes the index more difficult to use for investment and risk control purposes. The change will mean that index funds and exchange-traded funds can expect lower operating and transaction expenses and less tracking error. We also believe that removing the non-U.S. companies will make the S&P 500 a more useful benchmark for tracking large-cap U.S. equity market performance,' said Blitzer.
The seven non-U.S. companies will be replaced by five newly eligible companies, all recent IPOs, and two companies to be promoted from the S&P MidCap 400.
'WeÂ've been looking for the right opportunity to make this adjustment and this was the ideal time', said Blitzer. 'The number of large replacement candidates means that the capitalization of the additions will nearly offset the deletions. Plus, this is a year of unusually low S&P 500 index turnover due to the low number of mergers and acquisitions in the large cap sector, so we are making the change at a time when the impact on index investors will be minimized.'
Research conducted by Standard & PoorÂ's and other parties finds that membership in the S&P 500 does not have a lasting price impact. While there may be short-term reaction to the addition or deletion of a stock, studies show that these effects are temporary. Copies of Standard & PoorÂ's White Paper entitled 'Focusing the S&P 500 on U.S. Large Cap Stocks and the Removal of Non-U.S. Companies in the S&P 500,' and Standard & PoorÂ's studies 'Price Changes Associated with S&P 500 Deletions: Time Variation and Effect of Size and Share Prices' and 'Deletion of Canadian Stocks in the S&P 500' can be found at www.spglobal.com and www.standardandpoors.com.
(source: Standard & Poor)