More index funds will need to buy shares in Facebook (FB) now that the stock is set to join the Nasdaq 100. The exchange operator said Tuesday evening that Facebook will join the widely followed index of the 100 biggest non-financial Nasdaq OMX Group-listed (NDAQ) companies as of the open of trading on Wednesday Dec. 12.
It’s now likely just a matter of time before the Standard & Poor’s 500-stock index (SPY) includes the stock. Havingfour quarters as a public company of as-reported positive earnings is one criteria that will be met by the middle of next year.
Joining an index can provide a nice artificial tailwind for stock performance in the short run, though in this case the move has been expected for months, so the effect already may be priced into the stock. I noted in Barron’s noted as early as April that Facebook was on track to join the index late this year. Facebook’s stock was down a fraction in Tuesday after-hours trading shortly after the announcement.
The $31 billion PowerShares QQQ (QQQ), the seventh biggest exchange-traded fund, will need a chunk of the stock, as will a handful of smaller funds. Facebook will take the place of Infosys Ltd. (INFY).
For more reading on the “index premium” baked into stocks once they’re set to join a popular index, read here.