The reshaping of this index significantly impacts markets.
The third Friday in September is more than another day on the calendar for the financial market. It’s one of the four days a year when the S&P 500 index undergoes a rebalancing. With $5.7 trillion of assets passively tracking it, the reshaping of this index significantly impacts markets.
The S&P 500 Committee: Gatekeepers of the Index
The Committee that oversees the S&P 500 doesn’t limit its actions to rebalancing. At times, they also alter the index constituents. While they could act instantly if a company goes bankrupt, for example, they generally prefer to minimise unnecessary turnovers. They monitor stock developments closely before making a move. Numerous criteria come into play when determining eligibility, from company size to domicile, listing venue, liquidity, and financial viability.
A Shake-Up in the S&P 500
Two changes were brought about to the composition of the S&P 500. Lincoln National (LNC) and Newell Brands (NWL) were shown the exit; Airbnb (ABNB) and Blackstone (BX) took their places. Usually, these changes don’t make headlines. Newell Brands’ market capitalisation had dipped below the threshold for inclusion, while Airbnb’s had soared, ticking off all other conditions for inclusion post its 2020 IPO.
Lincoln National vs Blackstone: A Tale of Two Firms
With Lincoln National and Blackstone, however, there’s an intriguing narrative. Lincoln National, one of America’s oldest insurance companies, founded in 1905, has been replaced by Blackstone, an alternative asset manager established in 1985. Although they’ve historically operated in different financial services industry segments, Blackstone has recently stepped into the insurance market. Following the success of Apollo Global Management, it launched an Insurance Solutions division in 2018, managing $174 billion for insurance companies. This figure surpasses the $134 billion Lincoln has on its balance sheet.
The Changing Dynamics of the Insurance Value Chain
Although Blackstone and Lincoln don’t directly compete – Lincoln is a customer of Blackstone Insurance Solutions – their respective market approaches highlight divergent economics within the insurance value chain. Blackstone’s inclusion in the S&P 500 at Lincoln’s expense speaks volumes about the changing tides in the industry. While Blackstone was quick to share its celebrations on social media, Lincoln’s Pennsylvania headquarters atmosphere was likely more sombre.
Understanding the Transformation of the US Insurance Industry
If you’re interested in delving deeper into the evolving landscape of the US insurance industry, or if you require further information or have any queries, feel free to reach out to us. We’re here to help you navigate the intricate finance world; please get in touch with GSB Capital for further information.
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