S&P 500 Adds Berkshire Hathaway
Warren Buffett’s Berkshire Hathaway Inc. (NYSE: BRK.B) entered the roster of securities comprising the S&P 500 and the S&P 100 indexes following its acquisition of Burlington Northern Santa Fe Corp. (NYSE: BNI) on Feb. 12.
The company was expected to have roughly a 1.1 percent weighting in the S&P 500, which is “simply the proportion its float market cap is of the total index market cap,” David Blitzer, managing director of the S&P Index Committee, said.
Berkshire is one of the largest publicly traded U.S. companies, but it was never included in the S&P 500 before because its shares were not liquid enough, something that has changed with its recent 50/1 share split.
The value of the company’s shares rose significantly following the announcement due to increased demand. Typically, when a company is announced for addition to an index, investors rush to buy those securities ahead of expected institutional index buying.
Berkshire is a financial sector name, Burlington is an industrial one. According to Blitzer, the addition of Berkshire to the S&P 500 should not change the nature of the index. On the contrary, the company—post share split—“clearly fits the description” of an S&P 500 company: “a leading company in leading industries.”
Arnott, Ryan Team Up For New Bond Indexes
Research Affiliates and Ryan ALM announced in February that they had teamed up to create a new family of bond indexes. The founders of those companies—Rob Arnott and Ron Ryan, respectively—are both known for their outspoken opposition to traditional methods of market-capitalization weighting in indexes.
Arnott is best known in indexing circles for his patented Research Affiliates Fundamental Index methodology, which weights stocks by four fundamental measures: cash flow, sales, book value and dividends. His firm has partnered with FTSE in the creation of a family of equity indexes.
Meanwhile, Ryan’s asset/liability management firm includes an index division specializing in innovative bond indexes, and Ryan is considered one of the leading voices in fixed-income investment.
The new joint venture has Ryan ALM’s index unit using the RAFI methodology to build fixed-income indexes. The validity of using market-cap weighting in bond indexes—particularly those that are intended to be “investable”—has long been questioned, since it gives more weight to companies that have issued greater amounts of debt, which seems fairly counterintuitive. Current bond indexes are also often filled with small or illiquid issues, making them more difficult to track.
In addition to the application of Arnott’s four-factor alternative methodology, eligible issues are sorted into one of three maturity “cells”: 1-5 years, 5-10 years and 10-plus years. A single issuer can only have one bond for each maturity cell included in each index; according to the rules, the methodology selects the bond with the largest amount outstanding. Including only the largest of multiple shares is intended to ensure that the index is tracking the most investable of the choices, while limiting the investor’s exposure to a single issuer.
The current list of indexes resulting from the collaboration includes the RAFI U.S. Investment Grade Corporate Bond Master Index and the RAFI U.S. High Yield Bond Master Index, as well as subindexes targeting different maturity ranges.
Thomson Reuters Expands Index Family
In mid-March, Thomson Reuters announced a massive expansion of its global index family, with the addition of 7,500 sector-level indexes. The new indexes cover regions and geographic groupings ranging from widely accepted designations such as emerging markets to more specific ones like Iberia and NAFTA. The additions also include such unique industry breakdowns as diversified media, renewable energy and water.
The Thomson Reuters Indexes were originally launched in September 2009, with 800 indexes, and encompass 44 countries and 18 regions. The four-level Thomson Reuters Business Classification system, meanwhile, breaks down the Thomson Reuters universe of 70,000 publicly traded companies into 10 economic sectors, 25 business sectors, 52 industry groups and 124 industries.
Dow Jones STOXX Indexes Rebranded
Putting a period on the transition phase of its ownership change, STOXX Limited officially changed the names of its indexes. Previously marketed as the “Dow Jones STOXX” indexes, the benchmarks have now been rebranded as of March 1 as simply the STOXX indexes.
In November 2009, Deutsche Boerse and SIX Swiss Exchange announced the acquisition of Dow Jones’ one-third share in the index provider, with Deutsche Boerse acquiring a controlling (50 percent plus one share) stake.
But the rebranding isn’t the only change being made to the names. From now on, all STOXX indexes will mention the region they cover. Previously specialty indexes did not include that information in their nomenclature, and any indexes covering the entire European continent (as opposed to the eurozone or some other region) did not include the word “Europe” in their name. That worked fine when STOXX was strictly a regional index provider, but now that it’s gone global, “Europe” can no longer be considered a given. For example, the STOXX 50 Index is now the STOXX Europe 50 Index.
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