Facebook Selling Into the S&P 500

Facebook (FB), the most-watched candidate for the S&P 500 all year, will join the index tomorrow night, December 20th , after the market closes. Once ETFs, index mutual funds and other index funds complete their buying – probably sometime next week – roughly 12% of FB’s shares will be held by indexers.  As many expected, the stock jumped up on our December 11th announcement that FB would join the index. Moreover, FB outperformed the S&P 500 from December 11th to yesterday (December 18th) by 9.5 percentage points.

Hedge fund and arbitrageurs sometimes trade index additions hoping to profit from the expected stock bounce.  Dating back to the tech boom of the 1990s, when index adds and drops first drew a lot of attention, the company joining the index often sells stock through a secondary offering to take advantage of the demand for shares created by the index addition. FB is following this pattern – it is offering 70 million shares of its class A common stock, about 3% of the current outstanding float. Included in the 70 million are about 41.4 million shares being sold by Mark Zuckerberg, FB’s founder.

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