I’m not a conspiracy theorist at heart. But sometimes something comes across your desk (or since we’re in the 21st century, comes through your e-mail) that makes you go hmmmmm……..
Weeden & Co. is estimating over $7 Billion in flows at the market close on Friday to rebalance a number of indexes. Because shares outstanding have changed due to tons of secondary offerings (i.e. Banks), lots of sector weights will change. The biggest change will be an increase in the weighting for Financials.
In a shocking concidence, S&P lowered the credit ratings on 18 Banks this morning. They announced the downgrade two days before they are going to buy a bunch of these banks and increase the weighting in their own index.
The big picture is that with the proliferation of ETF’s, index performance has become competitive. Indexes no longer represent the overall economy, market, or something else. They are now a means to get assets under management, and when one index outperforms another people move money from one ETF to another. It’s real money we’re talking about, and adding a few extra basis points of performance might add up to millions in licensing fees.
The timing is nothing short of remarkable. The index might be “passive” but the news you can release is active! If you’re an investor in SPY or an S&P 500 index fund buying financials on the cheap will most likely help your performance so you certainly have nothing to complain about. What is a concern is how the performance derby will affect these indexes over time.
