What Twitter In S&P 500 Means To ETFs

June 05, 2018

Twitter is about to become an S&P 500 name. The company is being added to the S&P 500 Index later this week, replacing Monsanto, which is currently being acquired by Bayer.

The addition means various ETFs that track the S&P 500 will now have to own Twitter stock, which has a market cap of $30 billion.

There are 14 ETFs that directly track the market-cap-weighted S&P 500—funds such as the $261 billion SPDR S&P 500 ETF Trust (SPY), the $151 billion iShares Core S&P 500 ETF (IVV) and the $90 billion Vanguard S&P 500 ETF (VOO), to name a few. All of these funds will have to now buy Twitter stock.

There are also several ETFs that track smart-beta takes on the S&P 500 universe, such as the $15 billion Invesco S&P 500Equal Weight ETF (RSP), which tracks an equal-weighted index of S&P 500 companies. Each company in the portfolio weighs about 0.3%.

RSP is just one of many strategies that pick stocks from the S&P 500 roster that now find themselves looking to add Twitter to the lineup of portfolio holdings.

 

 

Twitter Stock Leading Gains In Several ETFs

The addition to the index also impacts ETFs that currently own Twitter. These funds are riding higher on the coattails of Twitter stock prices that have been rallying strongly, and today rose sharply on news of the company’s inclusion in the index. In early trade Tuesday, Twitter stock was up some 5%. Year-to-date, the stock has gained almost 66%.

 

 

This strong performance is helping drive returns in funds such as the Global X Social Media Index ETF (SOCL), which has the largest allocation to Twitter among U.S.-listed ETFs today. Twitter represents about 12% of the overall portfolio. The global technology ETF, with $184 million in assets, owns social media companies, and has Twitter and Facebook as its top holdings. SOCL is up more than 11% year-to-date.

The ARK Web x.0 ETF (ARKW) is the ETF with the second-largest allocation to Twitter, at 5.5%. ARKW hones in on companies its active manager sees as the internet’s next generation of innovators. Here the likes of Twitter, Tesla and Amazon lead portfolio holdings.

Among the other dozens of ETFs that own Twitter are the Invesco Dynamic Media ETF (PBS), which also allocates about 5.5% to Twitter; the ARK Innovation ETF (ARKK) has 5% and the Global X Millennials Thematic ETF (MILN) has 3.5% in the stock today. ETF investors have no trouble finding access to Twitter in ETF wrappers today.

 

Charts courtesy of StockCharts.com

 

More Of A Tech Tilt

Finally, Twitter’s inclusion will also mean the S&P 500 Index will tilt more heavily to the technology sector, which already represents 26% of the index today. Twitter is a tech company, replacing Monsanto, a basic materials company under the GICS classification. Materials represents less than 3% of the overall index sector allocations.

Below is sector breakdown of the S&P 500 Index prior to the Twitter/Monsanto news:

 

For a larger view, please click on the image above.

 

Source: S&P Dow Jones Indices

Contact Cinthia Murphy at [email protected]

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