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Index Inclusion is More Impactful than Warren Buffett’s Berkshire Hathaway

13 October 2020

Every company wants Berkshire Hathaway to buy their stock. Managed by Warren Buffett, Berkshire has a track record of successful investments and people believe in his strategy. As a demonstration, the average company that Berkshire initiates into outperforms the market by 3.1% the day the information is made public. However, this pales in comparison to the impact that simple index inclusion and exclusion can have on stock prices.

IHS Markit analyzed the impact of index inclusions and exclusions into the S&P 500 (large cap), S&P 400 (mid cap), and S&P 600 (small cap). Interestingly, the S&P 600 had by far the largest price impact while the S&P 500 was the least notable. Key highlights include: a 9.8% decline when a company is removed from the S&P 600 and a potentially counterintuitive 6.2% increase when a company is downgraded to the S&P 600 from the S&P 400.

By Alexander Yokum & Jason West

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IHS Markit provides industry-leading data, software and technology platforms and managed services to tackle some of the most difficult challenges in financial markets. We help our customers better understand complicated markets, reduce risk, operate more efficiently and comply with financial regulation.

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